Publication Type

Journal Article

Version

Preprint

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

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://dx.doi.org/10.1016/j.jeconom.2014.09.008

Included in

Econometrics Commons

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