IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Testing misspecified non-nested factor demand systems: Some Monte Carlo results

Listed author(s):
  • Matteo Manera


    (Istituto di Economia Politica, Università Commerciale "L. Bocconi", Via R. Sarfatti, 25, 20136 Milano, Italia)

Empirical factor demand analysis is a topic in which a choice must be made among several competing non-nested functional forms. Each of the commonly used factor demand systems, such as Translog, Generalized Leontief, Quadratic, and Generalized McFadden, exhibits statistical inadequacy when tested for the absence of residual autocorrelation, homoskedasticity and normality. This does not necessarily imply that the whole system is invalid, especially if misspecification affects only a subset of the equations forming the entire system. Since there is no theoretical guidance on how to select the model which is most able to capture the relevant features of the data, formal testing procedures can be useful. In the literature, paired and joint univariate non-nested tests (e.g. Davidson-MacKinnon's J and P tests, Bera-McAleer test and Barten-McAleer test) have been discussed at length, whereas virtually no attention has been paid to multivariate non-nested tests. In this paper we show how multivariate non-nested tests can be derived from their univariate counterparts, and we apply these tests to compare alternative factor demand systems. Since the outcome of a non-nested test is likely to be influenced by the type of misspecification affecting the competing models, we investigate the empirical performance of a multivariate non-nested test using new Monte Carlo experiments. The competing models are compared indirectly via a statistically adequate model which is considered as if it were the DGP. Under such circumstances, the distribution of the non-nested test of an incorrect null, when it is evaluated at the DGP, tends to be closer to the distribution of the test under the correct null, at least in small samples. A non-nested test is expected to select the model which is closest to the DGP. Moreover, we investigate the empirical behaviour of a non-nested test when the DGP has, in turn, autoregressive, heteroskedastic and non-normal errors. Finally, we provide some suggestions for the applied researcher.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Access to the full text of the articles in this series is restricted

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Springer in its journal Empirical Economics.

Volume (Year): 27 (2002)
Issue (Month): 4 ()
Pages: 657-686

in new window

Handle: RePEc:spr:empeco:v:27:y:2002:i:4:p:657-686
Note: received: November 1999/Final version received: May 2001
Contact details of provider: Web page:

Order Information: Web:

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:27:y:2002:i:4:p:657-686. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)

or (Rebekah McClure)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.