TY - JOUR
T1 - Tests for nonlinear restrictions under misspecified alternatives with an application to testing rational expectation hypotheses
AU - Bera, Anil
AU - Montes-Rojas, Gabriel
AU - Sosa-Escudero, Walter
AU - Alejo, Javier
PY - 2021/1
Y1 - 2021/1
N2 - This paper develops generalized method of moments-based (GMM-based) Lagrange multiplier tests for nonlinear hypotheses that are robust to locally misspecified possibly nonlinear alternatives. The procedure is based on an initial consistent GMM estimator of the parameters under a given set of nonlinear restrictions. The new test for one particular set of nonlinear hypotheses is consistent and has correct asymptotic size independently of whether the other, also nonlinear hypotheses, are correct or locally misspecified. To illustrate the usefulness of our proposed tests we consider testing rational expectations hypotheses using U.S. data.
AB - This paper develops generalized method of moments-based (GMM-based) Lagrange multiplier tests for nonlinear hypotheses that are robust to locally misspecified possibly nonlinear alternatives. The procedure is based on an initial consistent GMM estimator of the parameters under a given set of nonlinear restrictions. The new test for one particular set of nonlinear hypotheses is consistent and has correct asymptotic size independently of whether the other, also nonlinear hypotheses, are correct or locally misspecified. To illustrate the usefulness of our proposed tests we consider testing rational expectations hypotheses using U.S. data.
KW - GMM
KW - Lagrange multiplier tests
KW - Rao's score tests
KW - local misspecification
KW - nonlinear testing functions
KW - specification testing
UR - http://www.scopus.com/inward/record.url?scp=85118779974&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85118779974&partnerID=8YFLogxK
U2 - 10.1093/ectj/utaa010
DO - 10.1093/ectj/utaa010
M3 - Article
SN - 1368-4221
VL - 24
SP - 41
EP - 57
JO - Econometrics Journal
JF - Econometrics Journal
IS - 1
ER -