Simulation-based Tests that Can Use Any Number of Simulations

Jeffrey Scott Racine () and James MacKinnon ()

No 1027, Working Papers from Queen's University, Department of Economics

Abstract: Conventional procedures for Monte Carlo and bootstrap tests require that B, the number of simulations, satisfy a specific relationship with the level of the test. Otherwise, a test that would instead be exact will either overreject or underreject for finite B. We present expressions for the rejection frequencies associated with existing procedures and propose a new procedure that yields exact Monte Carlo tests for any positive value of B. This procedure, which can also be used for bootstrap tests, is likely to be most useful when simulation is expensive.

Keywords: resampling; Monte Carlo test; bootstrap test; percentiles; simulation (search for similar items in EconPapers)
JEL-codes: C12 C15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: Written
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