Testing Multiplicative Error Models Using Conditional Moment Tests
AbstractWe suggest a robust form of conditional moment test as a constructive test for func- tional misspecification in multiplicative error models. The proposed test has power solely against violations of the conditional mean restriction but is not affected by any other type of model misspecification. Monte-Carlo investigations show that an appro- priate choice of weighting function induces high power against various alternatives. We illustrate how to adapt the framework to test also out-of-sample moment restrictions, such as orthogonalities of prediction errors.
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Bibliographic InfoPaper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2008-067.
Length: 13 pages
Date of creation: Nov 2008
Date of revision:
Robust Conditional Moment Tests; Finite Sample Properties; Multiplicative Error Models; Prediction Errors;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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