Abstract
Suppose that the econometrician is interested in comparing two misspecified moment restriction models, where the comparison is performed in terms of some chosen measure of fit. This paper is concerned with describing an optimal test of the Vuong (1989) and Rivers and Vuong (2002) type null hypothesis that the two models are equivalent under the given measure of fit (the ranking may vary for different measures). We adopt the generalized NeymanPearson optimality criterion, which focuses on the decay rates of the type I and II error probabilities under fixed non-local alternatives, and derive an optimal but practically infeasible test. Then, as an illustration, by considering the model comparison hypothesis defined by the weighted Euclidean norm of moment restrictions, we propose a feasible approximate test statistic to the optimal one and study its asymptotic properties. Local power properties, one-sided test, and comparison under the generalized empirical likelihood-based measure of fit are also investigated. A simulation study illustrates that our approximate test is more powerful than the RiversVuong test.
| Original language | English |
|---|---|
| Pages (from-to) | 538-550 |
| Number of pages | 13 |
| Journal | Journal of Econometrics |
| Volume | 170 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2012 Oct 1 |
| Externally published | Yes |
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Keywords
- Generalized method of moments
- Generalized NeymanPearson optimality
- Misspecification
- Model comparison
- Moment restriction
ASJC Scopus subject areas
- Economics and Econometrics
- Applied Mathematics
- History and Philosophy of Science
Cite this
Optimal comparison of misspecified moment restriction models under a chosen measure of fit. / Marmer, Vadim; Otsu, Taisuke.
In: Journal of Econometrics, Vol. 170, No. 2, 01.10.2012, p. 538-550.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Optimal comparison of misspecified moment restriction models under a chosen measure of fit
AU - Marmer, Vadim
AU - Otsu, Taisuke
PY - 2012/10/1
Y1 - 2012/10/1
N2 - Suppose that the econometrician is interested in comparing two misspecified moment restriction models, where the comparison is performed in terms of some chosen measure of fit. This paper is concerned with describing an optimal test of the Vuong (1989) and Rivers and Vuong (2002) type null hypothesis that the two models are equivalent under the given measure of fit (the ranking may vary for different measures). We adopt the generalized NeymanPearson optimality criterion, which focuses on the decay rates of the type I and II error probabilities under fixed non-local alternatives, and derive an optimal but practically infeasible test. Then, as an illustration, by considering the model comparison hypothesis defined by the weighted Euclidean norm of moment restrictions, we propose a feasible approximate test statistic to the optimal one and study its asymptotic properties. Local power properties, one-sided test, and comparison under the generalized empirical likelihood-based measure of fit are also investigated. A simulation study illustrates that our approximate test is more powerful than the RiversVuong test.
AB - Suppose that the econometrician is interested in comparing two misspecified moment restriction models, where the comparison is performed in terms of some chosen measure of fit. This paper is concerned with describing an optimal test of the Vuong (1989) and Rivers and Vuong (2002) type null hypothesis that the two models are equivalent under the given measure of fit (the ranking may vary for different measures). We adopt the generalized NeymanPearson optimality criterion, which focuses on the decay rates of the type I and II error probabilities under fixed non-local alternatives, and derive an optimal but practically infeasible test. Then, as an illustration, by considering the model comparison hypothesis defined by the weighted Euclidean norm of moment restrictions, we propose a feasible approximate test statistic to the optimal one and study its asymptotic properties. Local power properties, one-sided test, and comparison under the generalized empirical likelihood-based measure of fit are also investigated. A simulation study illustrates that our approximate test is more powerful than the RiversVuong test.
KW - Generalized method of moments
KW - Generalized NeymanPearson optimality
KW - Misspecification
KW - Model comparison
KW - Moment restriction
UR - http://www.scopus.com/inward/record.url?scp=84865330387&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84865330387&partnerID=8YFLogxK
U2 - 10.1016/j.jeconom.2012.05.021
DO - 10.1016/j.jeconom.2012.05.021
M3 - Article
VL - 170
SP - 538
EP - 550
JO - Journal of Econometrics
JF - Journal of Econometrics
SN - 0304-4076
IS - 2
ER -