30 Pages Posted: 23 May 2008
Date Written: May 16, 2008
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 Cramer-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.
Keywords: Empirical likelihood, Non-nested tests, Conditional moment restrictions
JEL Classification: C12, C13, C14, C22
Suggested Citation: Suggested Citation
Otsu, Taisuke and Seo, Myung Hwan and Whang, Yoon-Jae, Testing for Non-Nested Conditional Moment Restrictions Using Unconditional Empirical Likelihood (May 16, 2008). Cowles Foundation Discussion Paper No. 1660. Available at SSRN: https://ssrn.com/abstract=1136109
By Mehmet Caner