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Quantile Regression under Misspecification, with an Application to the U.S. Wage Structure

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  • Joshua Angrist
  • Victor Chernozhukov
  • Iván Fernández-Val

Abstract

Quantile regression (QR) fits a linear model for conditional quantiles just as ordinary least squares (OLS) fits a linear model for conditional means. An attractive feature of OLS is that it gives the minimum mean-squared error linear approximation to the conditional expectation function even when the linear model is misspecified. Empirical research using quantile regression with discrete covariates suggests that QR may have a similar property, but the exact nature of the linear approximation has remained elusive. In this paper, we show that QR minimizes a weighted mean-squared error loss function for specification error. The weighting function is an average density of the dependent variable near the true conditional quantile. The weighted least squares interpretation of QR is used to derive an omitted variables bias formula and a partial quantile regression concept, similar to the relationship between partial regression and OLS. We also present asymptotic theory for the QR process under misspecification of the conditional quantile function. The approximation properties of QR are illustrated using wage data from the U.S. census. These results point to major changes in inequality from 1990 to 2000. Copyright The Econometric Society 2006.

Suggested Citation

  • Joshua Angrist & Victor Chernozhukov & Iván Fernández-Val, 2006. "Quantile Regression under Misspecification, with an Application to the U.S. Wage Structure," Econometrica, Econometric Society, vol. 74(2), pages 539-563, March.
  • Handle: RePEc:ecm:emetrp:v:74:y:2006:i:2:p:539-563
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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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