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Conditional Moment Tests for Normality in Bivariate Limited Dependent Variable Models: a Monte Carlo Study

Author

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  • Riccardo LUCCHETTI

    (Universita' Politecnica delle Marche, Dipartimento di Economia)

  • Claudia PIGINI

    (Universita' Politecnica delle Marche, Dipartimento di Economia)

Abstract

In 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.

Suggested Citation

  • Riccardo LUCCHETTI & Claudia PIGINI, 2011. "Conditional Moment Tests for Normality in Bivariate Limited Dependent Variable Models: a Monte Carlo Study," Working Papers 357, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    • Handle: RePEc:anc:wpaper:357
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    More about this item

    Keywords

    Bivariate Probit; Information Matrix test; Monte Carlo simulation; Sample Selection Model;
    All these keywords.

    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; Threshold Regression Models
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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