Teaching Size and Power Properties of Hypothesis Tests Through Simulations

Suleyman Taspinar and Doğan Osman
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Doğan Osman: Istanbul Ulasim A.S., Project Department, Istanbul, Turkey

Journal of Econometric Methods, 2017, vol. 6, issue 1, 15

Abstract: In this study, we review the graphical methods suggested in Davidson and MacKinnon (Davidson, Russell, and James G. MacKinnon. 1998. “Graphical Methods for Investigating the Size and Power of Hypothesis Tests.” The Manchester School 66 (1): 1–26.) that can be used to investigate size and power properties of hypothesis tests for undergraduate and graduate econometrics courses. These methods can be used to assess finite sample properties of various hypothesis tests through simulation studies. In addition, these methods can be effectively used in classrooms to reinforce students’ understanding of basic hypothesis testing concepts such as Type I error, Type II error, size, power, p-values and under-or-over-sized tests. We illustrate the procedural aspects of these graphical methods through Monte Carlo experiments, and provide the implementation codes written in Matlab and R for the classroom applications.

Keywords: hypothesis tests; P value discrepancy plots; P value plots; power; size; size-power curves (search for similar items in EconPapers)
JEL-codes: C13 C21 C31 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1515/jem-2015-0014

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