A Flexible Nonparametric Test for Conditional Independence
AbstractThis paper proposes a nonparametric test for conditional independence that is easy to implement, yet powerful in the sense that it is consistent and achieves root-n local power. The test statistic is based on an estimator of the topological "distance" between restricted and unrestricted probability measures corresponding to conditional independence or its absence. The distance is evaluated using a family of Generically Comprehensively Revealing (GCR) functions, such as the exponential or logistic functions, which are indexed by nuisance parameters. The use of GCR functions makes the test able to detect any deviation from the null. We use a kernel smoothing method when estimating the distance. An integrated conditional moment (ICM) test statistic based on these estimates is obtained by integrating out the nuisance parameters. We simulate the critical values using a conditional simulation approach. Monte Carlo experiments show that the test performs well in Ã–nite samples. As an application, we test the key assumption of unconfoundedness in the context of estimating the returns to schooling.
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Bibliographic InfoPaper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt3pt89204.
Date of creation: 01 May 2013
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Social and Behavioral Sciences; Physical Sciences and Mathematics; Conditional Independence; Generically Comprehensively Revealing; Nonparametric Test;
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