Testing for Monotonicity under Endogeneity An Application to the Reservation Wage Function
AbstractThis paper develops a test for monotonicity of nonparametric regression models under endogeneity, which in its generality is novel in the literature.� The test statistic, which is built upon a second order U-process, introduces 'correction terms' based on control functions that purge the endogeneity.� The test has a non-standard asymptotic distribution from which asymptotic critical values can directly be derived.� Furthermore, the test statistic is extended to accommodate multivariate (exogenous) regressors.� Consistency against general alternatives is proved and the test's finite sample properties are examined in a Monte Carlo experiment.� The test is used to formally assess the monotonicity of the reservation wage as a declining function of elapsed unemployment duration.� This relationship is difficult to measure due to the simultaneity of both variables.� Preliminary results indicate that reservation wage functions do in fact not decline monotonically.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 673.
Date of creation: 18 Sep 2013
Date of revision:
control function; endogeneity; reservation wages; test for monotonicity;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
- C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-02 (All new papers)
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