Publication Type
Working Paper
Version
publishedVersion
Publication Date
1-2014
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
Econometrics
Research Areas
Econometrics
First Page
1
Last Page
35
Citation
LEWBEL, Arthur; LU, Xun; and SU, Liangjun.
Specification Testing for Transformation Models. (2014). 1-35.
Available at: https://ink.library.smu.edu.sg/soe_research/1489
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Comments
Published in Journal of Econometrics https://doi.org/10.1016/j.jeconom.2014.09.008