Encompassing tests for the linear model

Abstract

The study of linear models together with all the extensions and ramifications has a long history in econometrics, and in statistics in general. Many tools for statistical inference have been designed for, or first been applied to, linear models. This is partly for reasons of analytical and computational tractability, although the latter becomes less and less of a problem. Furthermore, new ideas, unless by nature they pertain to nonlinear models, are more easily introduced and absorbed in the context of linear models. Non-nested hypotheses testing and encompassing are no exception to this rule. The normal linear regression model has indeed been the workhorse in this area.