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A practical two-step method for testing moment inequalities


Romano, Joseph P; Shaikh, Azeem M; Wolf, Michael (2014). A practical two-step method for testing moment inequalities. Working paper series / Department of Economics 90, University of Zurich.

Abstract

This paper considers the problem of testing a finite number of moment inequalities. We propose a two-step approach. In the first step, a confidence region for the moments is constructed. In the second step, this set is used to provide information about which moments are “negative.” A Bonferonni-type correction is used to account for the fact that with some probability the moments may not lie in the confidence region. It is shown that the test controls size uniformly over a large class of distributions for the observed data. An important feature of the proposal is that it remains computationally feasible, even when the number of moments is large. The finite-sample properties of the procedure are examined via a simulation study, which demonstrates, among other things, that the proposal remains competitive with existing procedures while being computationally more attractive.

This paper considers the problem of testing a finite number of moment inequalities. We propose a two-step approach. In the first step, a confidence region for the moments is constructed. In the second step, this set is used to provide information about which moments are “negative.” A Bonferonni-type correction is used to account for the fact that with some probability the moments may not lie in the confidence region. It is shown that the test controls size uniformly over a large class of distributions for the observed data. An important feature of the proposal is that it remains computationally feasible, even when the number of moments is large. The finite-sample properties of the procedure are examined via a simulation study, which demonstrates, among other things, that the proposal remains competitive with existing procedures while being computationally more attractive.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C12, C14
Uncontrolled Keywords:Bonferonni inequality, bootstrap, moment inequalities, partial identification, uniform validity
Language:English
Date:April 2014
Deposited On:28 Aug 2012 11:30
Last Modified:05 Apr 2016 15:56
Series Name:Working paper series / Department of Economics
Number of Pages:24
ISSN:1664-7041
Additional Information:Revised version ; Former title: "A simple two-step method for testing moment inequalities with an application to inference in partially identified models"
Official URL:http://www.econ.uzh.ch/static/wp/econwp090.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php
Permanent URL: http://doi.org/10.5167/uzh-64440

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