New goodness-of-fit diagnostics for conditional discrete response models

DOI10.1016/J.JECONOM.2017.05.017zbMATH Open1388.62259arXiv1706.00378OpenAlexW173878291MaRDI QIDQ2398981FDOQ2398981

Igor L. Kheifets, Carlos I. Hoyos Velasco

Publication date: 21 August 2017

Published in: Journal of Econometrics (Search for Journal in Brave)

Abstract: This paper proposes new specification tests for conditional models with discrete responses, which are key to apply efficient maximum likelihood methods, to obtain consistent estimates of partial effects and to get appropriate predictions of the probability of future events. In particular, we test the static and dynamic ordered choice model specifications and can cover infinite support distributions for e.g. count data. The traditional approach for specification testing of discrete response models is based on probability integral transforms of a jittered discrete data which leads to continuous uniform iid series under the true conditional distribution. Then, standard specification testing techniques for continuous variables could be applied to the transformed series, but the extra randomness from jitters affects the power properties of these methods. We investigate in this paper an alternative transformation based only on original discrete data that avoids any randomization. We analyze the asymptotic properties of goodness-of-fit tests based on this new transformation and explore the properties in finite samples of a bootstrap algorithm to approximate the critical values of test statistics which are model and parameter dependent. We show analytically and in simulations that our approach dominates the methods based on randomization in terms of power. We apply the new tests to models of the monetary policy conducted by the Federal Reserve.

Full work available at URL: https://arxiv.org/abs/1706.00378

zbMATH Keywords

count dataspecification testsordered choice modeldynamic discrete choice modelsconditional probability integral transform

Mathematics Subject Classification ID

Parametric hypothesis testing (62F03) Time series, auto-correlation, regression, etc. in statistics (GARCH) (62M10) Applications of statistics to economics (62P20)

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Cited In (1)

• Multivariate specification tests based on a dynamic Rosenblatt transform

Uses Software

• reldist

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