arXiv 5 Jun 2026 · Econometrics
arXiv:2606.07715 · PDF · DOI · OpenAlex · Extracted main text
This paper studies specification testing in dynamic linear models in the presence of omitted variables. The null hypothesis of interest is weak exogeneity: shocks have zero conditional expectation given their own past and the past of omitted variables. Existing tests based on quadratic forms of serial cross-correlations suffer from size distortions because their variance incorporates symmetric dependence in both directions, including causality from past shocks to present omitted variables (inverse causality). This paper proposes an asymmetric Portmanteau test that isolates violations of weak exogeneity from inverse causality, is asymptotically normal under the null, and does not require a parametric specification of the joint dynamics. An empirical application examines the Economic Policy Uncertainty shock series and rejects its weak exogeneity. Addressing this failure by controlling for omitted variables changes the estimated inflation response from negative to positive, suggesting a supply-side shock interpretation.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Diercks, Anthony M and Hsu, Alex and Tamoni, Andrea (2024) When it rains it pours: Cascading uncertainty shocks | 1.000 | 14 | 3 | 100% |
| 2 | Hong, Yongmiao (1996) Testing for independence between two covariance stationary time series | 1.000 | 9 | 3 | 100% |
| 3 | Baker, Scott R and Bloom, Nicholas and Davis, Steven J (2016) Measuring economic policy uncertainty | 1.000 | 8 | 3 | 100% |
| 4 | Hong, Yongmiao (1996) Consistent testing for serial correlation of unknown form | 1.000 | 7 | 3 | 100% |
| 5 | Hong, Yongmiao and Lee, Yoon-Jin (2005) Generalized spectral tests for conditional mean models in time series with conditional heteroscedasticity of unknown form | 0.935 | 11 | 5 | 82% |
| 6 | McCracken, Michael W and Ng, Serena (2016) FRED-MD: A monthly database for macroeconomic research | 0.874 | 9 | 2 | 100% |
| 7 | Escanciano, J Carlos and Velasco, Carlos (2006) Generalized spectral tests for the martingale difference hypothesis | 0.874 | 5 | 2 | 100% |
| 8 | Hong, Yongmiao (2001) A test for volatility spillover with application to exchange rates | 0.822 | 9 | 5 | 56% |
| 9 | Chen, Bin and Choi, Jinho and Escanciano, Juan Carlos (2017) Testing for fundamental vector moving average representations | 0.811 | 4 | 2 | 100% |
| 10 | Bouhaddioui, Chafik and Roy, Roch (2006) A generalized portmanteau test for independence of two infinite-order vector autoregressive series | 0.794 | 6 | 4 | 50% |
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