CFDP 1660

Testing for Non-Nested Conditional Moment Restrictions Using Unconditional Empirical Likelihood

Publication Date: May 2008

Pages: 29

Abstract: 

We propose non-nested hypotheses tests for conditional moment restriction models based on the method of generalized empirical likelihood (GEL). By utilizing the implied GEL probabilities from a sequence of unconditional moment restrictions that contains equivalent information of the conditional moment restrictions, we construct Kolmogorov-Smirnov and Cramer-von Mises type moment encompassing tests. Advantages of our tests over Otsu and Whang’s (2007) tests are: (i) they are free from smoothing parameters, (ii) they can be applied to weakly dependent data, and (iii) they allow non-smooth moment functions. We derive the null distributions, validity of a bootstrap procedure, and local and global power properties of our tests. The simulation results show that our tests have reasonable size and power performance in finite samples.

Keywords: 

Empirical likelihood, Non-nested tests, Conditional moment restrictions

JEL Classification Codes:  C12, C13, C14, C22

Note: 

Published in Journal of Econometrics (April 2012) 167(2): 370-382 [DOI]