Bounds for Inference with Nuisance Parameters Present Only Under the Alternative

26 Pages Posted: 5 Feb 2003

See all articles by Filippo Altissimo

Filippo Altissimo

Brevan Howard Asset Management LLP

Valentina Corradi

Queen Mary, University of London

Abstract

In hypothesis testing with nuisance parameters present only under the alternative two issues typically arise: (i) critical values are data dependent and so cannot be tabulated; (ii) we need to choose a functional over the nuisance parameter space. We address the first issue by providing easily computable bounds for the case of dependent and heterogeneous observations. We tackle the second issue by suggesting a weighted average statistic with weights given by the (quasi) likelihood over the nuisance parameter space. The small sample behavior of our procedure is analyzed via Monte Carlo simulations; we consider conditional moment tests and tests for nonlinearities in the SETAR model. An empirical illustration to the modeling of US male unemployment is provided.

Suggested Citation

Altissimo, Filippo and Corradi, Valentina, Bounds for Inference with Nuisance Parameters Present Only Under the Alternative. The Econometrics Journal, Vol. 5, pp. 494-519, 2002. Available at SSRN: https://ssrn.com/abstract=369160

Filippo Altissimo (Contact Author)

Brevan Howard Asset Management LLP ( email )

2nd Floor Almack House
28 King Street
London, SW1Y 6XA
United Kingdom

Valentina Corradi

Queen Mary, University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

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