Three essays in econometrics

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2011-05

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My dissertation includes three essays that examine or relax classical restrictive assumptions used in econometrics estimation methods. The first chapter proposes methods for examining how a response variable is influenced by a covariate. Rather than focusing on the conditional mean I consider a test of whether a covariate has an effect on the entire conditional distribution of the response variable given the covariate and other conditioning variables. This type of analysis is useful in situations where the econometrician or policy maker is interested in knowing whether a variable or policy would improve the distribution of the response outcomes in a stochastic dominance sense. The response variable is assumed to be continuous, while both discrete and continuous covariate cases are considered. I derive the asymptotic distribution of the test statistics and show that they have simple known asymptotic distributions under the null by using and extending conditional empirical process results given by Horvath and Yandell (1988). Monte Carlo experiments are conducted, and the tests are shown to have good small sample behavior. The tests are applied to a study on father's labor supply. The second chapter is based on previous joint work with Jason Abrevaya. It considers estimation of censored panel-data models with individual-specific slope heterogeneity. The slope heterogeneity may be random (random-slopes model) or related to covariates (correlated-random-slopes model). Maximum likelihood and censored least-absolute deviations estimators are proposed for both models. Specification tests are provided to test the slope-heterogeneity models against nested alternatives. The proposed estimators and tests are used for an empirical study of Dutch household portfolio choice. Strong evidence of correlated random slopes for the age variables is found, indicating that the age profile of portfolio adjustment varies significantly with other household characteristics. The third chapter proposes specification tests in models with endogenous covariates. In empirical studies, econometricians often have little information on the functional form of the structural model, regardless of whether covariates in model are exogenous or endogenous. In this chapter, I propose tests for restricted structural model specifications with endogenous covariates against the fully nonparametric alternative. The restricted model specifications include the nonparametric specification with a restricted set of covariates, the semiparametric single index specification and the parametric linear specification. Test statistics are “leave-one-out” type kernel U-statistic as used in Fan and Lee (1996). They are constructed using the idea of the control function approach. Monte Carlo results are provided and tests are shown to have reasonable small sample behavior.

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