Testing for stochastic monotonicity

Sokbae (Simon) Lee (), Oliver Bruce Linton () and Yoon-Jae Whang ()

No CWP21/08, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract:

We propose a test of the hypothesis of stochastic monotonicity. This hypothesis is of interest in many applications in economics. Our test is based on the supremum of a rescaled U-statistic. We show that its asymptotic distribution is Gumbel. The proof is diffcult because the approximating Gaussian stochastic process contains both a stationary and a nonstationary part and so we have to extend existing results that only apply to either one or the other case. We also propose a refinement to the asymptotic approximation that we show works much better infinite samples. We apply our test to the study of intergenerational income mobility.

New Economics Papers: this item is included in nep-ecm
Date: 2008-07
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Related works:
Working Paper: TESTING FOR STOCHASTICMONOTONICITY (2006)
Journal Article: Testing for Stochastic Monotonicity (2009)
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