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Specification Testing for Transformation Models with an Application to Generalized Accelerated Failure-time Models

Listed author(s):
  • Arthur Lewbel

    ()

    (Boston College)

  • Xun Lu

    (Hong Kong University of Science and Technology)

  • Liangjun Su

    (Singapore Management University)

Consider a nonseparable model Y=R(X,U) where Y and X are observed, while U is unobserved and conditionally independent of X. This paper provides the first nonparametric test of whether R takes the form of a transformation model, meaning that Y is monotonic in the sum of a function of X plus a function of U. Transformation models of this form are commonly assumed in economics, including, e.g., standard specifications of duration models and hedonic pricing models. Our test statistic is asymptotically normal under local alternatives and consistent against nonparametric alternatives. Monte Carlo experiments show that our test performs well in finite samples. We apply our results to test for specifications of generalized accelerated failure-time (GAFT) models of the duration of strikes and of marriages.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 817.

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Date of creation: 24 Dec 2012
Date of revision: 01 May 2013
Handle: RePEc:boc:bocoec:817
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