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Consistent model specification tests based on k-nearest-neighbor estimation method

Hongjun Li (), Qi Li and Ruixuan Liu

Journal of Econometrics, 2016, vol. 194, issue 1, 187-202

Abstract: We propose a simple consistent test for a parametric regression functional form based on k-nearest-neighbor (k-nn) method. We derive the null distribution of the test statistic and show that the test achieves the minimax rate optimality against smooth alternatives. A wild bootstrap method is used to better approximate the null distribution of the test statistic. We also propose a k-nn statistic which tests for omitted variables nonparametrically. Simulations and an empirical application using US economics new Ph.D. job market matching data show that the k-nn method is more appropriate than the kernel method to analyze unevenly distributed data.

Keywords: k-nearest-neighbor method; Consistent test; Bootstrap; Empirical application (search for similar items in EconPapers)
JEL-codes: C14 (search for similar items in EconPapers)
Date: 2016
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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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Handle: RePEc:eee:econom:v:194:y:2016:i:1:p:187-202