Non-nested Hypothesis Testing: An Overview
AbstractIn econometric analysis, non-nested models arise naturally when rival economic theories are used to explain the same phenomenon, such as unemployment, inflation or output growth. The authors examine the problem of hypothesis testing when the models under consideration are ‘non-nested’ or belong to ‘separate’ families of distributions in the sense that none of the individual models may be obtained form the remaining, either by imposition of parameter restrictions or through a limiting process. Although the primary focus is on non-nested hypothesis testing, the authors briefly discuss the problem of model selection and the differences and similarities between the two approaches. By using the linear regression model as a convenient framework, the authors examine three broad approaches to non-nested hypothesis testing: the modified (centred) long-likelihood ratio procedure, the comprehensive models approach, and the encompassing procedure. Finally, they consider a number of practical problems which arise in the application of non-nested tests to non-linear models such as the probit and logit qualitative response models.
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 Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 9918.
Date of creation: Sep 1999
Date of revision:
Contact details of provider:
Web page: http://www.econ.cam.ac.uk/index.htm
Non-nested hypotheses; Model selection; Cox’s test; Encompassing; Stochastic simulation; Kullback-Leibler divergence measure;
Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
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.:
- Pesaran, M. H., 1981.
"Pitfalls of testing non-nested hypotheses by the lagrange multiplier method,"
Journal of Econometrics,
Elsevier, vol. 17(3), pages 323-331, December.
- Pesaran, M. H., 1981. "Pitfalls of testing non-nested hypotheses by the lagrange multiplier method," Journal of Econometrics, Elsevier, vol. 16(1), pages 158-158, May.
- Hendry, David F, 1980. "Econometrics-Alchemy or Science?," Economica, London School of Economics and Political Science, vol. 47(188), pages 387-406, November.
- Pesaran, M H, 1982. "A Critique of the Proposed Tests of the Natural Rate-Rational Expectations Hypothesis," Economic Journal, Royal Economic Society, vol. 92(367), pages 529-54, September.
- Tong Li, 2006. "Simulation based selection of competing structural econometric models," CeMMAP working papers CWP16/06, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Jesús Crespo Cuaresma & Maria Antoinette Silgoner, 2004. "Groth effects of inflation in Europe: How low is too low, how high is too high?," Vienna Economics Papers 0411, University of Vienna, Department of Economics.
- Otsu, Taisuke & Whang, Yoon-Jae, 2011.
"Testing For Nonnested Conditional Moment Restrictions Via Conditional Empirical Likelihood,"
Cambridge University Press, vol. 27(01), pages 114-153, February.
- Taisuke Otsu & Yoon-Jae Whang, 2005. "Testing for Non-nested Conditional Moment Retrictions via Conditional Empirical Likelihood," Cowles Foundation Discussion Papers 1533, Cowles Foundation for Research in Economics, Yale University.
- Taisuke Otsu & Myung Hwan Seo & Yoon-Jae Whang, 2008.
"Testing for Non-Nested Conditional Moment Restrictions Using Unconditional Empirical Likelihood,"
Cowles Foundation Discussion Papers
1660, Cowles Foundation for Research in Economics, Yale University.
- Otsu, Taisuke & Seo, Myung Hwan & Whang, Yoon-Jae, 2012. "Testing for non-nested conditional moment restrictions using unconditional empirical likelihood," Journal of Econometrics, Elsevier, vol. 167(2), pages 370-382.
- Genius, Margarita & Strazzera, Elisabetta, 2002. "A note about model selection and tests for non-nested contingent valuation models," Economics Letters, Elsevier, vol. 74(3), pages 363-370, February.
- Geweke, J. & Joel Horowitz & Pesaran, M.H., 2006.
"Econometrics: A Bird’s Eye View,"
Cambridge Working Papers in Economics
0655, Faculty of Economics, University of Cambridge.
- Geweke, John F. & Horowitz, Joel L. & Pesaran, M. Hashem, 2006. "Econometrics: A Bird's Eye View," IZA Discussion Papers 2458, Institute for the Study of Labor (IZA).
- John Geweke & Joel Horowitz & M. Hashem Pesaran, 2006. "Econometrics: A Bird’s Eye View," CESifo Working Paper Series 1870, CESifo Group Munich.
- Li, Tong, 2009. "Simulation based selection of competing structural econometric models," Journal of Econometrics, Elsevier, vol. 148(2), pages 114-123, February.
- M. Genius & E. Strazzera, 2000. "Evaluation of likelihood based tests for non-nested dichotomus choice contingent valuation models," Working Paper CRENoS 200012, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
- Jesús Crespo-Cuaresma & Balázs Egert & Ronald MacDonald, 2005.
"Non-Linear Exchange Rate Dynamics in Target Zones: A Bumpy Road towards a Honeymoon - Some Evidence from the ERM, ERM2 and Selected New EU Member States,"
CESifo Working Paper Series
1511, CESifo Group Munich.
- Jesús Crespo-Cuaresma & Balázs Égert & Ronald MacDonald, 2005. "Non-Linear Exchange Rate Dynamics in Target Zones: A Bumpy Road Towards A Honeymoon Some Evidence from the ERM, ERM2 and Selected New EU Member States," William Davidson Institute Working Papers Series wp771, William Davidson Institute at the University of Michigan.
- Teräsvirta, Timo & Eliasson, Ann-Charlotte, 1998.
"Nonlinear error-correction and the UK demand for broad money, 1878-1993,"
Working Paper Series in Economics and Finance
265, Stockholm School of Economics, revised 30 Nov 1998.
- Timo Teräsvirta & Ann-Charlotte Eliasson, 2001. "Non-linear error correction and the UK demand for broad money, 1878-1993," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 277-288.
- Moheb Ghali & John M. Krieg & K. Surekha Rao, 2011. "A Bayesian Extension of the J-Test for Non-Nested Hypotheses," Journal of Quantitative Economics, The Indian Econometric Society, vol. 9(1), pages 53-72.
- Rosario Dell'Aquila & Elvezio Ronchetti, 2004. "Stock and Bond Return Predictability : The Discrimination Power of Model Selection Criteria," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 2004.05, Institut d'Economie et Econométrie, Université de Genève.
- Fingleton, Bernard, 2008. "Competing models of global dynamics: Evidence from panel models with spatially correlated error components," Economic Modelling, Elsevier, vol. 25(3), pages 542-558, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Howard Cobb).
If references are entirely missing, you can add them using this form.