Specification testing in random coefficient models

Arbeitspapier

In this paper, we suggest and analyze a new class of specification tests for random coefficient models. These tests allow to assess the validity of central structural features of the model, in particular linearity in coefficients and generalizations of this notion like a known nonlinear functional relationship. They also allow to test for degeneracy of the distribution of a random coefficient, i.e., whether a coefficient is fixed or random, including whether an associated variable can be omitted altogether. Our tests are nonparametric in nature, and use sieve estimators of the characteristic function. We analyze their power against both global and local alternatives in large samples and through a Monte Carlo simulation study. Finally, we apply our framework to analyze the specification in a heterogeneous random coefficients consumer demand model.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2015-053

Classification and Topics

• Classification: Wirtschaft ; Hypothesis Testing: General ; Semiparametric and Nonparametric Methods: General
• Subject: nonparametric specification testing ; random coefficients ; unobserved heterogeneity ; sieve minimum distance ; characteristic function ; consumer demand

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Breunig, Christoph ; Hoderlein, Stefan
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/146168
• Last update: 10.03.2025, 11:43 AM CET