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Testing for Non-Nested Conditional Moment Restrictions using Unconditional Empirical Likelihood

By Taisuke Otsu, Myung Hwan Seo and Yoon-jae Whang

Abstract

We propose non-nested hypotheses tests for conditional moment restriction models based on the method of generalized empirical likelihood (GEL). By utilizing the implied GEL probabilities from a sequence of unconditional moment restrictions that contains equivalent information of the conditional moment restrictions, we construct Kolmogorov-Smirnov and Cramér-von Mises type moment encompassing tests. Advantages of our tests over Otsu and Whang’s (2007) tests are: (i) they are free from smoothing parameters, (ii) they can be applied to weakly dependent data, and (iii) they allow non-smooth moment functions. We derive the null distributions, validity of a bootstrap procedure, and local and global power properties of our tests. The simulation results show that our tests have reasonable size and power performance in finite samples

Topics: Empirical likelihood, Non-nested tests, Conditional moment restrictions JEL Codes, C12, C13, C14, C22 We would like to thank Yuichi Kitamura for helpful comments
Year: 2008
OAI identifier: oai:CiteSeerX.psu:10.1.1.193.8834
Provided by: CiteSeerX
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