Franses, P.H. and Muradov, M. (2026). Diagnostic testing a time series regression with zero-one dummies Economics Letters, 268.
-
Affiliated author
-
Publication year2026
-
JournalEconomics Letters
We consider tests for normality, residual autocorrelation, and autoregressive conditional heteroskedasticity for a time series regression, which includes various zero-one dummy variables for individual observations. The sizes of these tests are distorted as the residuals associated with the dummies are equal to zero. We propose a simple solution which amounts to dismissing the observations with these zero-valued residuals, that is, treat these observations as missing. With simulations we show that the resulting tests have the proper size.