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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 hypothesis 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 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: HB Economic Theory
Publisher: Elsevier
Year: 2012
DOI identifier: 10.1016/j.jeconom.2011.09.022
OAI identifier: oai:eprints.lse.ac.uk:39313
Provided by: LSE Research Online
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