Testing for Non-Nested Conditional Moment Restrictions Via Conditional Empirical Likelihood

35 Pages Posted: 20 Sep 2005

See all articles by Taisuke Otsu

Taisuke Otsu

Yale University - Cowles Foundation

Yoon-Jae Whang

Seoul National University - School of Economics

Date Written: September 13, 2005

Abstract

We propose non-nested tests for competing conditional moment restriction models using a method of empirical likelihood. Our tests are based on the method of conditional empirical likelihood developed by Kitamura, Tripathi and Ahn (2004) and Zhang and Gijbels (2003). By using the conditional implied probabilities, we develop three non-nested tests: the moment encompassing, Cox-type, and efficient score encompassing tests. Compared to the existing non-nested tests which mainly focus on testing unconditional moment restrictions, our approach directly tests conditional moment restrictions which imply the infinite number of unconditional moment restrictions. We derive the null distributions and power properties of the proposed tests. Simulation experiments show that our tests have reasonable finite sample properties.

Keywords: Empirical likelihood, Non-nested tests, Encompassing tests, Cox-type tests, Conditional moment restrictions

JEL Classification: C12, C13, C14, C22

Suggested Citation

Otsu, Taisuke and Whang, Yoon-Jae, Testing for Non-Nested Conditional Moment Restrictions Via Conditional Empirical Likelihood (September 13, 2005). Cowles Foundation Discussion Paper No. 1533, Available at SSRN: https://ssrn.com/abstract=805365

Taisuke Otsu (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Yoon-Jae Whang

Seoul National University - School of Economics ( email )

San 56-1, Silim-dong, Kwanak-ku
Seoul 151-742
Korea
+82 2 80 6362 (Phone)
+82 2 86 4231 (Fax)

HOME PAGE: http://plaza.snu.ac.kr/~whang

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