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A Test for Monotone Comparative Statics

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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Abstract

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
Record Number:CaltechAUTHORS:20101008-110658112
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20101008-110658112
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:20357
Collection:CaltechAUTHORS
Deposited By: Shirley Johnson
Deposited On:08 Oct 2010 18:15
Last Modified:26 Dec 2012 12:31

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