A Test for Monotone Comparative Statics

Federico Echenique and Ivana Komunjer

A chapter in Structural Econometric Models, 2013, vol. 31, pp 183-232 from Emerald Group Publishing Limited

Abstract: In this article we design an econometric test for monotone comparative statics (MCS) often found in models with multiple equilibria. Our test exploits the observable implications of the MCS prediction: that the extreme (high and low) conditiona l quantiles of the dependent variable increase monotonically with the explanatory variable. The main contribution of the article is to derive a likelihood-ratio test, which to the best of our knowledge is the first econometric test of MCS proposed in the literature. The test is an asymptotic “chi-bar squared” test for order restrictions on intermediate conditional quantiles. The key features of our approach are: (1) we do not need to estimate the underlying nonparametric model relating the dependent and explanatory variables to the latent disturbances; (2) we make few assumptions on the cardinality, location, or probabilities over equilibria. In particular, one can implement our test without assuming an equilibrium selection rule.

Keywords: Multiple equilibria; comparative statics; quantiles; chi-bar squared; C12; C51 (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: A Test For Monotone Comparative Statics (2007)
Working Paper: A test for monotone comparative statics (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(2013)0000032007

DOI: 10.1108/S0731-9053(2013)0000032007

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