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Optimal Comparison of Misspecified Moment Restriction Models

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Author Info
Marmer, Vadim
Otsu, Taisuke

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Abstract

This paper considers optimal testing of model comparison hypotheses for misspecified unconditional moment restriction models. We adopt the generalized Neyman-Pearson optimality criterion, which focuses on the convergence rates of the type I and II error probabilities under fixed global alternatives, and derive an optimal but practically infeasible test. We then propose feasible approximation test statistics to the optimal one. For linear instrumental variable regression models, the conventional empirical likelihood ratio test statistic emerges. For general nonlinear moment restrictions, we propose a new test statistic based on an iterative algorithm. We derive the asymptotic properties of these test statistics.

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Paper provided by Microeconomics.ca Website in its series Micro Theory Working Papers with number vadim_marmer-2008-13.

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Length: 37 pages
Date of creation: 01 Oct 2008
Date of revision: 21 Aug 2009
Handle: RePEc:ubc:pmicro:vadim_marmer-2008-13

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Related research
Keywords: Moment restriction; Model comparison; Misspecification; Generalized Neyman-Pearson optimality; Empirical likelihood; GMM;

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing

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