Conditional Moment Tests for Normality in Bivariate Limited Dependent Variable Models: a Monte Carlo Study
AbstractIn this paper, we run a Monte Carlo analysis of the finite-sample performance of an Information Matrix Test put forward by Smith (1985) for bivariate censored models. We use the bivariate probit model and Heckman selection model as examples.;Approximating the finite-sample distribution of this test statistic by its asymptotic distribution can lead to very misleading results: its size is severely distorted even in samples that common practice would judge to be perfectly adequate for asymptotics. This is especially true when the correlation coefficient is far from zero.;Power properties of the test statistic are investigated by using bivariate t(6) and x2(1) alternatives. The test has very low power against leptokurtosis, especially in the bivariate probit case, while power against asymmetry appears to be much more satisfactory.;In general, the performance of the Information Matrix test seems to be related to the amount of information on the latent variables which survives the censoring mechanism. A somewhat improved version of the test can be obtained, in some cases, by a careful choice of the moment conditions to employ.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali in its series Working Papers with number 357.
Date of creation: Jun 2011
Date of revision:
Bivariate Probit; Information Matrix test; Monte Carlo simulation; Sample Selection Model;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Murphy, Anthony, 2007.
"Score tests of normality in bivariate probit models,"
Elsevier, vol. 95(3), pages 374-379, June.
- Anthony Murphy, 2005. "Score Tests of Normality in Bivariate Probit Models," Econometrics 0512004, EconWPA.
- Thomas Mroz, .
"The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions,"
University of Chicago - Population Research Center
84-8, Chicago - Population Research Center.
- Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-99, July.
- Hall, A.R., 1984.
"The Information Matrix Test for the Linear Model,"
The Warwick Economics Research Paper Series (TWERPS)
250, University of Warwick, Department of Economics.
- Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S29-59, Supplemen.
- Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
- Tauchen, George, 1985. "Diagnostic testing and evaluation of maximum likelihood models," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 415-443.
- Skeels, Christopher L. & Vella, Francis, 1999. "A Monte Carlo investigation of the sampling behavior of conditional moment tests in Tobit and Probit models," Journal of Econometrics, Elsevier, vol. 92(2), pages 275-294, October.
- Horowitz, Joel L., 1994. "Bootstrap-based critical values for the information matrix test," Journal of Econometrics, Elsevier, vol. 61(2), pages 395-411, April.
- Bera, Anil K & Jarque, Carlos M & Lee, Lung-Fei, 1984. "Testing the Normality Assumption in Limited Dependent Variable Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(3), pages 563-78, October.
- Montes-Rojas, G., 2008.
"Robust misspecification tests for the Heckman’s two-step estimator,"
08/01, Department of Economics, City University London.
- Gabriel Montes-Rojas, 2011. "Robust Misspecification Tests for the Heckman's Two-Step Estimator," Econometric Reviews, Taylor & Francis Journals, vol. 30(2), pages 154-172.
- Gao, Chuanming & Lahiri, Kajal, 2000. "Further consequences of viewing LIML as an iterated Aitken estimator," Journal of Econometrics, Elsevier, vol. 98(2), pages 187-202, October.
- Orme, Chris, 1990. "The small-sample performance of the information-matrix test," Journal of Econometrics, Elsevier, vol. 46(3), pages 309-331, December.
- Robinson, Peter M, 1982. "On the Asymptotic Properties of Estimators of Models Containing Limited Dependent Variables," Econometrica, Econometric Society, vol. 50(1), pages 27-41, January.
- Chesher, Andrew & Irish, Margaret, 1987. "Residual analysis in the grouped and censored normal linear model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 33-61.
- Miguel Santolino & Catalina Bolancé & Manuela Alcañiz, 2011. "Factors affecting hospital admission and recovery stay duration of in-patient motor victims in Spain," IREA Working Papers 201119, University of Barcelona, Research Institute of Applied Economics, revised Oct 2011.
- Elena AMBROSETTI & Eralba CELA & Tineke FOKKEMA, 2011. "The Remittances Behaviour of the Second Generation in Europe: Altruism or Self-Interest?," Working Papers 368, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
- Eralba CELA & Tineke FOKKEMA & Elena AMBROSETTI, 2012. "Links Between Transnationalism Integration and Duration of Residence: The Case of eastern European Migrants in Italy," Working Papers 386, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
- Claudia PIGINI, 2012. "Of Butterflies and Caterpillars: Bivariate Normality in the Sample Selection Model," Working Papers 377, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maurizio Mariotti).
If references are entirely missing, you can add them using this form.