Echenique, Federico and Komunjer, Ivana (2007) A Test for Monotone Comparative Statics. Social Science Working Paper, 1278. California Institute of Technology , Pasadena, CA. http://resolver.caltech.edu/CaltechAUTHORS:20101008-110658112
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In this paper we design an econometric test for monotone comparative statics (MCS) often found in models with multiple equilibria. Our test exploits the observable implications of the MCS prediction: that the extreme (high and low) conditional quantiles of the dependent variable increase monotonically with the explanatory variable. The main contribution of the paper is to derive a likelihood-ratio test, which to the best of our knowledge, is the first econometric test of MCS proposed in the literature. The test is an asymptotic “chi-bar squared” test for order restrictions on intermediate conditional quantiles. The key features of our approach are: (1) it does not require estimating the underlying nonparametric model relating the dependent and explanatory variables to the latent disturbances; (2) it makes few assumptions on the cardinality, location or probabilities over equilibria. In particular, one can implement our test without assuming an equilibrium selection rule.
|Item Type:||Report or Paper (Working Paper)|
|Group:||Social Science Working Papers|
|Subject Keywords:||Econometrics of Games, Monotone Comparative Statics, Quantile Regression, Multiple Equilibria|
|Classification Code:||JEL classification numbers: C1,C5|
|Usage Policy:||No commercial reproduction, distribution, display or performance rights in this work are provided.|
|Deposited By:||Katherine Johnson|
|Deposited On:||08 Oct 2010 18:15|
|Last Modified:||26 Dec 2012 12:31|
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