A Specification Test for Models Estimated by Quadrature

Geert Dhaene and João M.C. Santos Silva ()

Economics Discussion Papers from University of Essex, Department of Economics

Abstract: This paper suggests a simple specification test to check the adequacy of the assumptions made about the distribution of individual effects in models where these unobservable random variables are integrated out by quadrature methods. Because the proposed test checks the specification of the finite-mixture analogue of the model of interest, it also has power to detect other forms of misspecification. Additionally, it is shown that it is easy to increase the flexibility of models with unobserved individual effects. The results of a Monte Carlo study and an application using a well known data set are presented to illustrate the finite sample properties of the proposed methods and their implementation in practice.

New Economics Papers: this item is included in nep-ecm
Date: 2008-10-20
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