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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.

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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)
Echenique, Federico0000-0002-1567-6770
Group:Social Science Working Papers
Subject Keywords:Econometrics of Games, Monotone Comparative Statics, Quantile Regression, Multiple Equilibria
Series Name:Social Science Working Paper
Issue or Number:1278
Classification Code:JEL classification numbers: C1,C5
Record Number:CaltechAUTHORS:20101008-110658112
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:20357
Deposited By: Katherine Johnson
Deposited On:08 Oct 2010 18:15
Last Modified:26 Nov 2019 11:15

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