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Testing Competing Models for Non-negative Data with Many Zeros

Author

Listed:
  • Silva João M. C. Santos

    (University of Essex, Wivenhoe Park, Colchester CO4 3SQ, UK)

  • Tenreyro Silvana

    (London School of Economics and CfM, CREI, CEP, CEPR, Department of Economics, 32 Lincoln’s Inn Fields, 2.17, London WC2A 3PH, UK)

  • Windmeijer Frank

    (Department of Economics, University of Bristol, 8 Woodland Road, Bristol BS8 1TN, UK)

Abstract

In economic applications it is often the case that the variate of interest is non-negative and its distribution has a mass-point at zero. Many regression strategies have been proposed to deal with data of this type but, although there has been a long debate in the literature on the appropriateness of different models, formal statistical tests to choose between the competing specifications are not often used in practice. We use the non-nested hypothesis testing framework of Davidson and MacKinnon (Davidson and MacKinnon 1981. “Several Tests for Model Specification in the Presence of Alternative Hypotheses.” Econometrica 49: 781–793.) to develop a novel and simple regression-based specification test that can be used to discriminate between these models.

Suggested Citation

  • Silva João M. C. Santos & Tenreyro Silvana & Windmeijer Frank, 2015. "Testing Competing Models for Non-negative Data with Many Zeros," Journal of Econometric Methods, De Gruyter, vol. 4(1), pages 1-18, January.
  • Handle: RePEc:bpj:jecome:v:4:y:2015:i:1:p:18:n:4
    DOI: 10.1515/jem-2013-0005
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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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