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Inference for rank-rank regressions

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  • Denis Chetverikov
  • Daniel Wilhelm

Abstract

Slope coefficients in rank-rank regressions are popular measures of intergenerational mobility, for instance in regressions of a child's income rank on their parent's income rank. In this paper, we first point out that commonly used variance estimators such as the homoskedastic or robust variance estimators do not consistently estimate the asymptotic variance of the OLS estimator in a rank-rank regression. We show that the probability limits of these estimators may be too large or too small depending on the shape of the copula of child and parent incomes. Second, we derive a general asymptotic theory for rank-rank regressions and provide a consistent estimator of the OLS estimator's asymptotic variance. We then extend the asymptotic theory to other regressions involving ranks that have been used in empirical work. Finally, we apply our new inference methods to three empirical studies. We find that the confidence intervals based on estimators of the correct variance may sometimes be substantially shorter and sometimes substantially longer than those based on commonly used variance estimators. The differences in confidence intervals concern economically meaningful values of mobility and thus lead to different conclusions when comparing mobility in U.S. commuting zones with mobility in other countries.

Suggested Citation

  • Denis Chetverikov & Daniel Wilhelm, 2023. "Inference for rank-rank regressions," CeMMAP working papers 23/23, Institute for Fiscal Studies.
  • Handle: RePEc:azt:cemmap:23/23
    DOI: 10.47004/wp.cem.2023.2323
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    1. Raj Chetty & John N. Friedman & Nathaniel Hilger & Emmanuel Saez & Diane Whitmore Schanzenbach & Danny Yagan, 2011. "How Does Your Kindergarten Classroom Affect Your Earnings? Evidence from Project Star," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(4), pages 1593-1660.
    2. Martin Klein & Tommy Wright & Jerzy Wieczorek, 2020. "A joint confidence region for an overall ranking of populations," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 69(3), pages 589-606, June.
    3. Petra Ornstein & Johan Lyhagen, 2016. "Asymptotic Properties of Spearman’s Rank Correlation for Variables with Finite Support," PLOS ONE, Public Library of Science, vol. 11(1), pages 1-7, January.
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    Cited by:

    1. Richard Audoly & Rory McGee & Sergio Ocampo & Gonzalo Paz-Pardo, 2024. "The Life-Cycle Dynamics of Wealth Mobility," Staff Reports 1097, Federal Reserve Bank of New York.

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