TESTING REGRESSION MONOTONICITY IN ECONOMETRIC MODELS
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Publication:4967792
DOI10.1017/S0266466618000282zbMATH Open1420.62480arXiv1212.6757WikidataQ129223126 ScholiaQ129223126MaRDI QIDQ4967792FDOQ4967792
Authors: Denis Chetverikov 
Publication date: 11 July 2019
Published in: Econometric Theory (Search for Journal in Brave)
Abstract: Monotonicity is a key qualitative prediction of a wide array of economic models derived via robust comparative statics. It is therefore important to design effective and practical econometric methods for testing this prediction in empirical analysis. This paper develops a general nonparametric framework for testing monotonicity of a regression function. Using this framework, a broad class of new tests is introduced, which gives an empirical researcher a lot of flexibility to incorporate ex ante information she might have. The paper also develops new methods for simulating critical values, which are based on the combination of a bootstrap procedure and new selection algorithms. These methods yield tests that have correct asymptotic size and are asymptotically nonconservative. It is also shown how to obtain an adaptive rate optimal test that has the best attainable rate of uniform consistency against models whose regression function has Lipschitz-continuous first-order derivatives and that automatically adapts to the unknown smoothness of the regression function. Simulations show that the power of the new tests in many cases significantly exceeds that of some prior tests, e.g. that of Ghosal, Sen, and Van der Vaart (2000). An application of the developed procedures to the dataset of Ellison and Ellison (2011) shows that there is some evidence of strategic entry deterrence in pharmaceutical industry where incumbents may use strategic investment to prevent generic entries when their patents expire.
Full work available at URL: https://arxiv.org/abs/1212.6757
Recommendations
Nonparametric hypothesis testing (62G10) Asymptotic properties of nonparametric inference (62G20) Applications of statistics to economics (62P20)
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