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Simulation-based Tests that Can Use Any Number of Simulations

Author

Listed:
  • Jeff Racine

    () (McMaster University)

  • James G. MacKinnon

    () (Queen's University)

Abstract

Conventional procedures for Monte Carlo and bootstrap tests require that B, the number of simulations, satisfy a specific relationship with the level of the test. Otherwise, a test that would instead be exact will either overreject or underreject for finite B. We present expressions for the rejection frequencies associated with existing procedures and propose a new procedure that yields exact Monte Carlo tests for any positive value of B. This procedure, which can also be used for bootstrap tests, is likely to be most useful when simulation is expensive.

Suggested Citation

  • Jeff Racine & James G. MacKinnon, 2004. "Simulation-based Tests that Can Use Any Number of Simulations," Working Papers 1027, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1027
    as

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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1027.pdf
    File Function: First version 2004
    Download Restriction: no

    References listed on IDEAS

    as
    1. Russell Davidson & James MacKinnon, 2000. "Bootstrap tests: how many bootstraps?," Econometric Reviews, Taylor & Francis Journals, vol. 19(1), pages 55-68.
    2. Gourieroux, Christian & Monfort, Alain, 1997. "Simulation-based Econometric Methods," OUP Catalogue, Oxford University Press, number 9780198774754.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. MacKinnon, James G., 2011. "Thirty Years of Heteroskedasticity-Robust Inference," Queen's Economics Department Working Papers 273816, Queen's University - Department of Economics.
    2. JAMES G. MacKINNON, 2006. "Bootstrap Methods in Econometrics," The Economic Record, The Economic Society of Australia, vol. 82(s1), pages 2-18, September.
    3. Racine, Jeffrey S. & MacKinnon, James G., 2007. "Inference via kernel smoothing of bootstrap P values," Computational Statistics & Data Analysis, Elsevier, vol. 51(12), pages 5949-5957, August.
    4. James G. MacKinnon, 2007. "Bootstrap Hypothesis Testing," Working Papers 1127, Queen's University, Department of Economics.
    5. Rand Wilcox & Florence Clark, 2014. "Comparing robust regression lines associated with two dependent groups when there is heteroscedasticity," Computational Statistics, Springer, vol. 29(5), pages 1175-1186, October.
    6. Francisco J. Ruge-Murcia, 2013. "Generalized Method of Moments estimation of DSGE models," Chapters,in: Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 20, pages 464-485 Edward Elgar Publishing.
    7. Racine, Jeffrey S. & MacKinnon, James G., 2007. "Inference via kernel smoothing of bootstrap P values," Computational Statistics & Data Analysis, Elsevier, vol. 51(12), pages 5949-5957, August.

    More about this item

    Keywords

    resampling; Monte Carlo test; bootstrap test; percentiles; simulation;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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