Specification testing for transformation models with an application to generalized accelerated failure-time models

Specification testing for transformation models with an application to generalized accelerated failure-time models

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 eco...

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Bibliographic Details
Main Authors: LEWBEL, Arthur, LU, Xun, SU, Liangjun
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2015
Subjects:
Additivity
Control variable
Endogenous variable
Monotonicity
Nonparametric nonseparable model
Hazard model
Specification test
Transformation model
Unobserved heterogeneity
Econometrics
Economics
Online Access:https://ink.library.smu.edu.sg/soe_research/1636
https://ink.library.smu.edu.sg/context/soe_research/article/2635/viewcontent/SpecTestTansformationModelsGAFT_20130501.pdf
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Institution: Singapore Management University
Language: English
Description
Summary: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.

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