Publication Type
Journal Article
Version
submittedVersion
Publication Date
1-2015
Abstract
This paper provides a nonparametric test of the specification of a transformation model. Specifically, we test whether an observable outcome Y is monotonic in the sum of a function of observable covariates X plus an unobservable error 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 violating the implied restriction. 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.
Keywords
Additivity, Control variable, Endogenous variable, Monotonicity, Nonparametric nonseparable model, Hazard model, Specification test, Transformation model, Unobserved heterogeneity
Discipline
Econometrics | Economics
Research Areas
Econometrics
Publication
Journal of Econometrics
Volume
184
Issue
1
First Page
81
Last Page
96
ISSN
0304-4076
Identifier
10.1016/j.jeconom.2014.09.008
Publisher
Elsevier
Citation
LEWBEL, Arthur; LU, Xun; and SU, Liangjun.
Specification testing for transformation models with an application to generalized accelerated failure-time models. (2015). Journal of Econometrics. 184, (1), 81-96.
Available at: https://ink.library.smu.edu.sg/soe_research/1636
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jeconom.2014.09.008