A Test For Monotone Comparative Statics

Ivana Komunjer and Federico Echenique

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: In this paper 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) conditional quantiles of the dependent variable increase monotonically with the explanatory variable. The main contribution of the paper is to derive a likelihoodratio 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) it does not require estimating the underlying nonparametric model relating the dependent and explanatory variables to the latent disturbances; (2) it makes 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" (search for similar items in EconPapers)
Date: 2007-10-01
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Related works:
Chapter: A Test for Monotone Comparative Statics (2013)
Working Paper: A test for monotone comparative statics (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:cdl:ucsdec:qt76d4p2kb

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