Testing Multivariate Economic Restrictions Using Quantiles: The Example of Slutsky Negative Semidefiniteness

Holger Dette (), Stefan Hoderlein and Natalie Neumeyer ()
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Holger Dette: University of Bochum
Natalie Neumeyer: University of Hamburg

No 836, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper is concerned with testing rationality restrictions using quantile regression methods. Specifically, we consider negative semidefiniteness of the Slutsky matrix, arguably the core restriction implied by utility maximization. We consider a heterogeneous population characterized by a system of nonseparable structural equations with infinite dimensional unobservable. To analyze this economic restriction, we employ quantile regression methods because they allow us to utilize the entire distribution of the data. Difficulties arise because the restriction involves several equations, while the quantile is a univariate concept. We establish that we may test the economic restriction by considering quantiles of linear combinations of the dependent variable. For this hypothesis we develop a new empirical process based test that applies kernel quantile estimators, and derive its large sample behavior. We investigate the performance of the test in a simulation study. Finally, we apply all concepts to Canadian microdata, and show that rationality is not rejected.

Keywords: Nonparametric Testing; Heterogeneity; Integrability; Nonseparable Models; Consumer Demand; Quantile Regression (search for similar items in EconPapers)
JEL-codes: C12 C14 D12 (search for similar items in EconPapers)
Date: 2013-09-27
New Economics Papers: this item is included in nep-upt
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Related works:
Journal Article: Testing multivariate economic restrictions using quantiles: The example of Slutsky negative semidefiniteness (2016)
Working Paper: Testing multivariate economic restrictions using quantiles: the example of Slutsky negative semidefiniteness (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:836

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