Kernel-Smoothed Conditional Quantiles of Correlated Bivariate Discrete Data

Jan G. Gooijer and Ao Yuan
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Ao Yuan: Howard University, Washington

No 11-011/4, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Often socio-economic variables are measured on a discrete scale or rounded to protect confidentiality. Nevertheless, when exploring the effect of a relevant covariate on the whole outcome distribution of a discrete response variable, virtually all common quantile regression methods require the distribution of the covariate to be continuous. This paper departs from this basic requirement by presenting an algorithm for nonparametric estimation of conditional quantiles when both the response variable and the covariate are discretely distributed. Moreover, we allow the variables of interest to be pairwise correlated. For computational efficiency, we aggregate the data into smaller subsets by a binning operation, and make inference on the resulting prebinned data. Specifically, we propose two kernel-based binned conditional quantile estimators, one for untransformed discrete response data and one for rank-transformed response data. We establish asymptotic properties of both estimators. A practical procedure for jointly selecting band- and binwidth parameters is also presented. Simulation results show excellent estimation accuracy in terms of bias, mean squared error, and confidence interval coverage. Typically prebinning the data leads to considerable computational savings when large datasets are under study, as compared to direct (un)conditional quantile kernel estimation of multivariate data. With this in mind, we illustrate the proposed methodology with an application to a large real dataset concerning US hospital patients with congestive heart failure.

Keywords: Binning; Bootstrap; Confidence interval; Jittering; Nonparametric (search for similar items in EconPapers)
JEL-codes: C14 (search for similar items in EconPapers)
Date: 2011-01-17
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Citations: View citations in EconPapers (1)

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