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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. Econometrica, 82(5):1979-2002.

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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2 citations in Web of Science®
4 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:September 2014
Deposited On:16 Sep 2014 12:23
Last Modified:05 Apr 2016 18:22
Publisher:Wiley-Blackwell Publishing, Inc.
ISSN:0012-9682
Additional Information:The copyright to this article is held by the Econometric Society, http://www.econometricsociety.org/. It may be downloaded, printed and reproduced only for personal or classroom use. Absolutely no downloading or copying may be done for, or on behalf of, any for-profit commercial firm or other commercial purpose without the explicit permission of the Econometric Society. For this purpose, contact Claire Sashi, General Manager, at sashi@econometricsociety.org.
Publisher DOI:https://doi.org/10.3982/ECTA11011
Related URLs:http://dx.doi.org/10.5167/uzh-64440
Permanent URL: https://doi.org/10.5167/uzh-98745

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