CFDP 2184R2

Misspecified Moment Inequality Models: Inference and Diagnostics

Author(s): 

Publication Date: July 2019

Revision Date: October 2019July 2022

Pages: 45

Abstract: 

This paper is concerned with possible model misspecification in moment inequality models. Two issues are addressed. First, standard tests and confidence sets for the true parameter in the moment inequality literature are not robust to model misspecification in the sense that they exhibit spurious precision when the identified set is empty. This paper introduces tests and confidence sets that provide correct asymptotic inference for a pseudo-true parameter in such scenarios, and hence, do not su↵er from spurious precision. Second, specification tests have relatively low power against a range of misspecified models. Thus, failure to reject the null of correct specification does not necessarily provide evidence of correct specification. That is, model specification tests are subject to the problem that absence of evidence is not evidence of absence. This paper develops new diagnostics for model misspecification in moment inequality models that do not su↵er from this problem.

Supplemental material

Supplement pages: 153

Keywords: Asymptotics, confidence set, diagnostics, identification, inference, misspecification, moment inequalities, robust, spurious precision, test

JEL Classification Codes: C10, C12

JEL Classification Codes: C10C12

See CFDP Version(s): CFDP 2184CFDP 2184R