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Power in Econometric Applications

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Abstract

This paper is concerned with the use of power properties of tests in econometric applications. Power radius and inverse power functions are defined. These functions are designed to yield summary measures of power that facilitate the interpretation of test results in practice. Simple approximations are introduced for the power radius and inverse power functions of Wald, likelihood ration, Lagrange multiplier, and Hausman tests. These approximations readily convey the general qualitative features of the power of a test. Examples are provided to illustrate their usefulness in interpreting test results.

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File URL: http://cowles.econ.yale.edu/P/cd/d08a/d0800.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 800.

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Length: 54 pages
Date of creation: Aug 1986
Date of revision:
Publication status: Published in Econometrica (September 1989), 57(5): 1050-1090
Handle: RePEc:cwl:cwldpp:800

Note: CFP 737.
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Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
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Web page: http://cowles.econ.yale.edu/
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

Related research

Keywords: Power function; hypothesis tests; inverse power function;

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References

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  1. Mizon, Grayham E & Richard, Jean-Francois, 1986. "The Encompassing Principle and Its Application to Testing Non-nested Hypotheses," Econometrica, Econometric Society, vol. 54(3), pages 657-78, May.
  2. Lillard, Lee A & Aigner, Dennis J, 1984. "Time-of-Day Electricity Consumption Response to Temperature and the Ownership of Air Conditioning Appliances," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(1), pages 40-53, January.
  3. Donald W.K. Andrews, 1985. "Asymptotic Results for Generalized Wald Tests," Cowles Foundation Discussion Papers 761R, Cowles Foundation for Research in Economics, Yale University, revised Apr 1986.
  4. Holly, Alberto, 1982. "A Remark on Hausman's Specification Test," Econometrica, Econometric Society, vol. 50(3), pages 749-59, May.
  5. McAleer, Michael & Pagan, Adrian R & Volker, Paul A, 1985. "What Will Take the Con out of Econometrics?," American Economic Review, American Economic Association, vol. 75(3), pages 293-307, June.
  6. Savin, N.E., 1984. "Multiple hypothesis testing," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 14, pages 827-879 Elsevier.
  7. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  8. McCloskey, Donald N, 1985. "The Loss Function Has Been Mislaid: The Rhetoric of Significance Tests," American Economic Review, American Economic Association, vol. 75(2), pages 201-05, May.
  9. Barro, Robert J., 1978. "Unanticipated Money, Output, and the Price Level in the United States," Scholarly Articles 3450988, Harvard University Department of Economics.
  10. Nakamura, Alice & Nakamura, Masao, 1985. "On the performance of tests by Wu and by Hausman for detecting the ordinary least squares bias problem," Journal of Econometrics, Elsevier, vol. 29(3), pages 213-227, September.
  11. Engle, Robert F., 1984. "Wald, likelihood ratio, and Lagrange multiplier tests in econometrics," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 13, pages 775-826 Elsevier.
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