Specification testing for transformation models with an application to generalized accelerated failure-time models

Arthur Lewbel, Xun Lu and Liangjun Su ()

Journal of Econometrics, 2015, vol. 184, issue 1, 81-96

Abstract: This paper provides a nonparametric test of the specification of a transformation model. Specifically, we test whether an observable outcome Y is monotonic in the sum of a function of observable covariates X plus an unobservable error U. Transformation models of this form are commonly assumed in economics, including, e.g., standard specifications of duration models and hedonic pricing models. Our test statistic is asymptotically normal under local alternatives and consistent against nonparametric alternatives violating the implied restriction. Monte Carlo experiments show that our test performs well in finite samples. We apply our results to test for specifications of generalized accelerated failure-time (GAFT) models of the duration of strikes.

Keywords: Additivity; Control variable; Endogenous variable; Monotonicity; Nonparametric nonseparable model; Hazard model; Specification test; Transformation model; Unobserved heterogeneity (search for similar items in EconPapers)
JEL-codes: C12 C14 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Working Paper: Specification Testing for Transformation Models with an Application to Generalized Accelerated Failure-time Models (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:184:y:2015:i:1:p:81-96

DOI: 10.1016/j.jeconom.2014.09.008

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