NONPARAMETRIC ESTIMATION AND TESTING OF INTERACTION IN ADDITIVE MODELS

Stefan Sperlich, Dag Tj stheim and Lijian Yang ()

Econometric Theory, 2002, vol. 18, issue 02, pages 197-251

Abstract: We consider an additive model with second-order interaction terms. Both marginal integration estimators and a combined backfitting-integration estimator are proposed for all components of the model and their derivatives. The corresponding asymptotic distributions are derived. Moreover, two test statistics for testing the presence of interactions are proposed. Asymptotics for the test functions and local power results are obtained. Because direct implementation of the test procedure based on the asymptotics would produce inaccurate results unless the number of observations is very large, a bootstrap procedure is provided, which is applicable for small or moderate sample sizes. Further, based on these methods a general test for additivity is developed. Estimation and testing methods are shown to work well in simulation studies. Finally, our methods are illustrated on a five-dimensional production function for a set of Wisconsin farm data. In particular, the separability hypothesis for the production function is discussed.

Date: 2002
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Working Paper: Nonparametric Estimation and Testing of Interaction in Additive Models
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