In this paper we present a Wald or distance test for testing the stability of a linear dynamic model. Stability requires that all latent roots of the system simultaneously satisfy inequality restrictions. Unlike previous tests proposed in the literature our procedure is capable of testing the restrictions simultaneously. Therefore, the test asymptotically has the correct size. The procedure can be applied in practice if stability is not a requirement for identification of the dynamic model.
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Kodde, D.A., Palm, F.C. Testing the stability of a linear dynamic model. Statistische Hefte 28, 263–270 (1987). https://doi.org/10.1007/BF02932606
- Latent Root
- Wald Test
- Characteristic Root
- Distance Test
- International Economic Review