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TESTING FOR NONNESTED CONDITIONAL MOMENT RESTRICTIONS VIA CONDITIONAL EMPIRICAL LIKELIHOOD

Published online by Cambridge University Press:  30 April 2010

Taisuke Otsu  and
Yoon-Jae Whang
Taisuke Otsu*
Affiliation:
Yale University
Yoon-Jae Whang
Affiliation:
Seoul National University
*
*Address correspondence to Taisuke Otsu, Cowles Foundation for Research in Econonomics, Yale University, New Haven CT 06520, U.S.A; e-mail address: taisuke.otsu@yale.edu.
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Abstract

We propose nonnested tests for competing conditional moment restriction models using the method of conditional empirical likelihood, recently developed by Kitamura, Tripathi, and Ahn (2004) and Zhang and Gijbels (2003). To define the test statistics, we use the implied conditional probabilities from conditional empirical likelihood, which take into account the full implications of conditional moment restrictions. We propose three types of nonnested tests: the moment-encompassing, Cox-type, and efficient score-encompassing tests. We derive the asymptotic null distributions and investigate their power properties against a sequence of local alternatives and a fixed global alternative. Our tests have distinct global power properties from some of the existing tests based on finite-dimensional unconditional moment restrictions. Simulation experiments show that our tests have reasonable finite sample properties and dominate some of the existing nonnested tests in terms of size-corrected powers.

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Type
ARTICLES
Information
Econometric Theory , Volume 27 , Issue 1: SPECIAL ISSUE ON EMPIRICAL LIKELIHOOD AND RELATED METHODS , February 2011 , pp. 114 - 153
Copyright
Copyright © Cambridge University Press 2010

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