Causality versus Serial Correlation: an Asymmetric Portmanteau Test (opens in new tab)

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 f...