Title

Specification Testing for Transformation Models

Publication Type

Working Paper

Publication Date

1-2013

Abstract

Consider a nonseparable model Y=R(X,U) where Y and X are observed, while U is unobserved and conditionally independent of X. This paper provides the first nonparametric test of whether R takes the form of a transformation model, meaning that Y is monotonic in the sum of a function of X plus a function of U. Transformation models of this form are commonly assumed in economics, including, e.g., standard specifications of duration models and hedonic pricing models. Our test statistic is asymptotically normal under local alternatives and consistent against nonparametric alternatives. Monte Carlo experiments show that our test performs well in finite samples. We apply our results to test for specifications of generalized accelerated failure-time (GAFT) models of the duration of strikes and of marriages.

Keywords

additivity, control variable, endogenous variable, monotonicity, nonparametric nonseparable model, hazard model, specification test, transformation model, unobserved heterogeneity

Discipline

Economics

Research Areas

Econometrics

City or Country

Submitted

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://ideas.repec.org/p/boc/bocoec/817.html

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