Subvector inference when the true parameter vector may be near or at the boundary

Philipp Ketz

Journal of Econometrics, 2018, vol. 207, issue 2, 285-306

Abstract: Extremum estimators are not asymptotically normally distributed when the estimator satisfies the restrictions on the parameter space – such as the non-negativity of a variance parameter – andthe true parameter vector is near or at the boundary. This possible lack of asymptotic normality makes it difficult to construct tests for testing subvector hypotheses that control asymptotic size in a uniform sense and have good local asymptotic power irrespective of whether the true parameter vector is at, near, or far from the boundary. We propose a novel estimator that is asymptotically normally distributed even when the true parameter vector is near or at the boundary and the objective function is not defined outside the parameter space. The proposed estimator allows the implementation of a new test based on the Conditional Likelihood Ratio statistic that is easy-to-implement, controls asymptotic size, and has good local asymptotic power properties. Furthermore, we show that the test enjoys certain asymptotic optimality properties when the parameter of interest is scalar. In an application of the random coefficients logit model (Berry, Levinsohn and Pakes, 1995) to the European car market, we find that, for most parameters, the new test leads to tighter confidence intervals than the two-sided t-test commonly used in practice.

Keywords: Boundary; Asymptotic normality; Admissibility; Random coefficients (search for similar items in EconPapers)
JEL-codes: C12 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Working Paper: Subvector inference when the true parameter vector may be near or at the boundary (2018)
Working Paper: Subvector inference when the true parameter vector may be near or at the boundary (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:207:y:2018:i:2:p:285-306

DOI: 10.1016/j.jeconom.2018.08.003

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