IDEAS home Printed from https://ideas.repec.org/a/taf/emetrv/v18y1999i2p195-209.html
   My bibliography  Save this article

Monte carlo sampling approach to testing nonnested hypothesis: monte carlo results

Author

Listed:
  • N. Coulibaly
  • B. Wade Brorsen

Abstract

Alternative ways of using Monte Carlo methods to implement a Cox-type test for separate families of hypotheses are considered. Monte Carlo experiments are designed to compare the finite sample performances of Pesaran and Pesaran's test, a RESET test, and two Monte Carlo hypothesis test procedures. One of the Monte Carlo tests is based on the distribution of the log-likelihood ratio and the other is based on an asymptotically pivotal statistic. The Monte Carlo results provide strong evidence that the size of the Pesaran and Pesaran test is generally incorrect, except for very large sample sizes. The RESET test has lower power than the other tests. The two Monte Carlo tests perform equally well for all sample sizes and are both clearly preferred to the Pesaran and Pesaran test, even in large samples. Since the Monte Carlo test based on the log-likelihood ratio is the simplest to calculate, we recommend using it.

Suggested Citation

  • N. Coulibaly & B. Wade Brorsen, 1999. "Monte carlo sampling approach to testing nonnested hypothesis: monte carlo results," Econometric Reviews, Taylor & Francis Journals, vol. 18(2), pages 195-209.
  • Handle: RePEc:taf:emetrv:v:18:y:1999:i:2:p:195-209 DOI: 10.1080/07474939908800439
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/07474939908800439
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-1339, November.
    2. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, pages 11-44.
    3. Geweke, John, 1988. "Antithetic acceleration of Monte Carlo integration in Bayesian inference," Journal of Econometrics, Elsevier, vol. 38(1-2), pages 73-89.
    4. Kloek, Tuen & van Dijk, Herman K, 1978. "Bayesian Estimates of Equation System Parameters: An Application of Integration by Monte Carlo," Econometrica, Econometric Society, vol. 46(1), pages 1-19, January.
    5. Chib, Siddhartha & Greenberg, Edward, 1996. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometric Theory, Cambridge University Press, vol. 12(03), pages 409-431, August.
    6. Engle, Robert F & Hendry, David F & Richard, Jean-Francois, 1983. "Exogeneity," Econometrica, Econometric Society, pages 277-304.
    7. Zellner, Arnold, 1985. "Bayesian Econometrics," Econometrica, Econometric Society, vol. 53(2), pages 253-269, March.
    8. Kiefer, Nicholas M. & Salmon, Mark, 1983. "Testing normality in econometric models," Economics Letters, Elsevier, pages 123-127.
    9. Steel, Mark F. J. & Richard, Jean-Francois, 1991. "Bayesian multivariate exogeneity analysis : An application to a UK money demand equation," Journal of Econometrics, Elsevier, pages 239-274.
    10. Poirier, Dale J, 1988. "Frequentist and Subjectivist Perspectives on the Problems of Model Building in Economics," Journal of Economic Perspectives, American Economic Association, pages 121-144.
    11. Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, pages 533-559.
    12. repec:cup:etheor:v:12:y:1996:i:3:p:409-31 is not listed on IDEAS
    13. Anglin, Paul M & Gencay, Ramazan, 1996. "Semiparametric Estimation of a Hedonic Price Function," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 633-648, Nov.-Dec..
    14. Edward C. Prescott & Stephen L. Parente, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, pages 1216-1233.
    15. Geweke, John, 1989. "Exact predictive densities for linear models with arch disturbances," Journal of Econometrics, Elsevier, vol. 40(1), pages 63-86, January.
    16. Poirier, Dale J., 1997. "Comparing and choosing between two models with a third model in the background," Journal of Econometrics, Elsevier, vol. 78(2), pages 139-151, June.
    17. Geweke, John, 1996. "Monte carlo simulation and numerical integration," Handbook of Computational Economics,in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 15, pages 731-800 Elsevier.
    18. Roberts, G. O. & Smith, A. F. M., 1994. "Simple conditions for the convergence of the Gibbs sampler and Metropolis-Hastings algorithms," Stochastic Processes and their Applications, Elsevier, vol. 49(2), pages 207-216, February.
    19. Hans M. Amman & David A. Kendrick, . "Computational Economics," Online economics textbooks, SUNY-Oswego, Department of Economics, number comp1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Park, Seong C. & Brorsen, B. Wade & Stoecker, Arthur L. & Hattey, Jeffory A., 2012. "Forage Response to Swine Effluent: A Cox Nonnested Test of Alternative Functional Forms Using a Fast Double Bootstrap," Journal of Agricultural and Applied Economics, Cambridge University Press, pages 593-606.
    2. Kaitibie, Simeon & Nganje, William E. & Brorsen, B. Wade & Epplin, Francis M., 2003. "Optimal Grazing Pressure Under Output Price And Production Uncertainty With Alternative Functional Forms," 2003 Annual meeting, July 27-30, Montreal, Canada 22020, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    3. Dameus, Alix & Brorsen, B. Wade & Sukhdial, Kullapapruk Piewthongngam & Richter, Francisca G.-C., 2001. "Aids Versus Rotterdam: A Cox Nonnested Test With Parametric Bootstrap," 2001 Annual meeting, August 5-8, Chicago, IL 20453, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Berg, Nathan, 2004. "No-decision classification: an alternative to testing for statistical significance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(5), pages 631-650, November.
    5. Kapetanios, G. & Weeks, M., 2003. "Non-nested Models and the likelihood Ratio Statistic: A Comparison of Simulation and Bootstrap-based Tests," Cambridge Working Papers in Economics 0308, Faculty of Economics, University of Cambridge.
    6. Dameus, Alix & Richter, Francisca G.-C. & Brorsen, B. Wade & Sukhdial, Kullapapruk Piewthongngam, 2002. "Aids Versus The Rotterdam Demand System: A Cox Test With Parametric Bootstrap," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(02), December.

    More about this item

    Keywords

    Cox test; Monte Carlo test; Nonnested hypotheses; JEL Classification:C12; C15;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:emetrv:v:18:y:1999:i:2:p:195-209. 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: (). General contact details of provider: http://www.tandfonline.com/LECR20 .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.