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Testing For Nonnested Conditional Moment Restrictions Via Conditional Empirical Likelihood

  • Otsu, Taisuke
  • Whang, Yoon-Jae

We propose nonnested tests for competing conditional moment restriction models using the method of conditional empirical likelihood, recently developed by Kitamura, Tripathi, and Ahn (2004) and Zhang and Gijbels (2003). To define the test statistics, we use the implied conditional probabilities from conditional empirical likelihood, which take into account the full implications of conditional moment restrictions. We propose three types of nonnested tests: the moment-encompassing, Cox-type, and efficient score-encompassing tests. We derive the asymptotic null distributions and investigate their power properties against a sequence of local alternatives and a fixed global alternative. Our tests have distinct global power properties from some of the existing tests based on finite-dimensional unconditional moment restrictions. Simulation experiments show that our tests have reasonable finite sample properties and dominate some of the existing nonnested tests in terms of size-corrected powers.

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Article provided by Cambridge University Press in its journal Econometric Theory.

Volume (Year): 27 (2011)
Issue (Month): 01 (February)
Pages: 114-153

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Handle: RePEc:cup:etheor:v:27:y:2011:i:01:p:114-153_00
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  16. Yi-Ting Chen & Chung-Ming Kuan, 2000. "The Pseudo-True Score Encompassing Test for Non-Nested Hypothesis," Econometric Society World Congress 2000 Contributed Papers 1723, Econometric Society.
  17. Smith, Richard J, 1992. "Non-nested.Tests for Competing Models Estimated by Generalized Method of Moments," Econometrica, Econometric Society, vol. 60(4), pages 973-80, July.
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