Question: Section 3.5 considered two competing models for US consumption utilizing an encompassing test. Different approaches to comparing nonnested models are the J test suggested by

Section 3.5 considered two competing models for US consumption utilizing an encompassing test. Different approaches to comparing nonnested models are the J test suggested by Davidson and MacKinnon (1981) and the Cox test. Both are available in the package lmtest in the functions jtest() and coxtest(). For the methodological background, we refer to Greene (2003, Chapter 8) and Davidson and MacKinnon (2004).

(a) Test cons_lm1 vs. cons_lm2 using the J test.

(b) Test cons_lm1 vs. cons_lm2 using the Cox test. Do all tests lead to similar conclusions?

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