Testing for Omitted Variables

Similar documents
Module Contact: Dr P Moffatt, ECO Copyright of the University of East Anglia Version 2

MgtOp 215 Chapter 13 Dr. Ahn

Tests for Two Correlations

Notes are not permitted in this examination. Do not turn over until you are told to do so by the Invigilator.

Which of the following provides the most reasonable approximation to the least squares regression line? (a) y=50+10x (b) Y=50+x (d) Y=1+50x

ECONOMETRICS - FINAL EXAM, 3rd YEAR (GECO & GADE)

Analysis of Variance and Design of Experiments-II

Sampling Distributions of OLS Estimators of β 0 and β 1. Monte Carlo Simulations

Numerical Analysis ECIV 3306 Chapter 6

/ Computational Genomics. Normalization

4. Greek Letters, Value-at-Risk

Using Conditional Heteroskedastic

A Comparison of Statistical Methods in Interrupted Time Series Analysis to Estimate an Intervention Effect

3/3/2014. CDS M Phil Econometrics. Vijayamohanan Pillai N. Truncated standard normal distribution for a = 0.5, 0, and 0.5. CDS Mphil Econometrics

Solutions to Odd-Numbered End-of-Chapter Exercises: Chapter 12

Data Mining Linear and Logistic Regression

Tests for Two Ordered Categorical Variables

Introduction to PGMs: Discrete Variables. Sargur Srihari

II. Random Variables. Variable Types. Variables Map Outcomes to Numbers

Quiz on Deterministic part of course October 22, 2002

Midterm Exam. Use the end of month price data for the S&P 500 index in the table below to answer the following questions.

International ejournals

A Set of new Stochastic Trend Models

OCR Statistics 1 Working with data. Section 2: Measures of location

Answers to exercises in Macroeconomics by Nils Gottfries 2013

Appendix - Normally Distributed Admissible Choices are Optimal

The Mack-Method and Analysis of Variability. Erasmus Gerigk

Information Flow and Recovering the. Estimating the Moments of. Normality of Asset Returns

Negative Binomial Regression Analysis And other count models

Natural Resources Data Analysis Lecture Notes Brian R. Mitchell. IV. Week 4: A. Goodness of fit testing

Forecasts in Times of Crises

Equilibrium in Prediction Markets with Buyers and Sellers

An Application of Alternative Weighting Matrix Collapsing Approaches for Improving Sample Estimates

Evaluating Performance

THE VOLATILITY OF EQUITY MUTUAL FUND RETURNS

DOUBLE IMPACT. Credit Risk Assessment for Secured Loans. Jean-Paul Laurent ISFA Actuarial School University of Lyon & BNP Paribas

Chapter 3 Descriptive Statistics: Numerical Measures Part B

ISyE 512 Chapter 9. CUSUM and EWMA Control Charts. Instructor: Prof. Kaibo Liu. Department of Industrial and Systems Engineering UW-Madison

Maximum Likelihood Estimation of Isotonic Normal Means with Unknown Variances*

Capability Analysis. Chapter 255. Introduction. Capability Analysis

Value of L = V L = VL = VU =$48,000,000 (ii) Owning 1% of firm U provides a dollar return of.01 [EBIT(1-T C )] =.01 x 6,000,000 = $60,000.

occurrence of a larger storm than our culvert or bridge is barely capable of handling? (what is The main question is: What is the possibility of

σ may be counterbalanced by a larger

CHAPTER 9 FUNCTIONAL FORMS OF REGRESSION MODELS

Linear Combinations of Random Variables and Sampling (100 points)

Problem Set 6 Finance 1,

Economic Design of Short-Run CSP-1 Plan Under Linear Inspection Cost

ASSESSING GOODNESS OF FIT OF GENERALIZED LINEAR MODELS TO SPARSE DATA USING HIGHER ORDER MOMENT CORRECTIONS

Chapter 11: Optimal Portfolio Choice and the Capital Asset Pricing Model

Supplementary material for Non-conjugate Variational Message Passing for Multinomial and Binary Regression

Inference on Reliability in the Gamma and Inverted Gamma Distributions

On the Least Absolute Deviations Method for Ridge Estimation of SURE Models

Multifactor Term Structure Models

Domestic Savings and International Capital Flows

Introduction. Why One-Pass Statistics?

Heterogeneity in Expectations, Risk Tolerance, and Household Stock Shares

ANOVA Procedures for Multiple Linear Regression Model with Non-normal Error Distribution: A Quantile Function Distribution Approach

Alternatives to Shewhart Charts

Financial Econometrics Series SWP 2016/01. Optimal Panel Unit Root Testing with Covariates. A. Juodis and J. Westerlund. Faculty of Business and Law

Statistical issues in traffic accident modeling

Monte Carlo Rendering

ECE 586GT: Problem Set 2: Problems and Solutions Uniqueness of Nash equilibria, zero sum games, evolutionary dynamics

Likelihood Fits. Craig Blocker Brandeis August 23, 2004

Joe Hirschberg and Jenny Lye Economics, University of Melbourne. September 2017

Lecture 9 Cochrane Chapter 8 Conditioning information

Multiobjective De Novo Linear Programming *

c slope = -(1+i)/(1+π 2 ) MRS (between consumption in consecutive time periods) price ratio (across consecutive time periods)

Humboldt-Universität zu Berlin

CHAPTER 3: BAYESIAN DECISION THEORY

PASS Sample Size Software. :log

Gender Differentials in the Housing Markets in Latin America

CrimeStat Version 3.3 Update Notes:

Robust Stochastic Lot-Sizing by Means of Histograms

Estimation of Wage Equations in Australia: Allowing for Censored Observations of Labour Supply *

Simulated Maximum Likelihood Estimation of Continuous Time Stochastic Volatility Models

Utilizing an Almost Ideal Demand System

Correlations and Copulas

Price Formation on Agricultural Land Markets A Microstructure Analysis

How Likely Is Contagion in Financial Networks?

Consumption Based Asset Pricing

2) In the medium-run/long-run, a decrease in the budget deficit will produce:

Chapter 10 Making Choices: The Method, MARR, and Multiple Attributes

Performance of the FGS3SLS Estimator in Small Samples: A Monte Carlo Study

NBER WORKING PAPER SERIES A REVIEW OF ESTIMATES OF THE SCHOOLING/EARNINGS RELATIONSHIP, WITH TESTS FOR PUBLICATION BIAS

Effects of Model Specification and Demographic Variables on Food. Consumption: Microdata Evidence from Jiangsu, China. The Area of Focus:

Increasing the Accuracy of Option Pricing by Using Implied Parameters Related to Higher Moments. Dasheng Ji. and. B. Wade Brorsen*

Economics 1410 Fall Section 7 Notes 1. Define the tax in a flexible way using T (z), where z is the income reported by the agent.

Spatial Variations in Covariates on Marriage and Marital Fertility: Geographically Weighted Regression Analyses in Japan

THE ECONOMICS OF TAXATION

Option Repricing and Incentive Realignment

UNIVERSITY OF NOTTINGHAM

Chapter 11: Optimal Portfolio Choice and the Capital Asset Pricing Model

ISE High Income Index Methodology

- contrast so-called first-best outcome of Lindahl equilibrium with case of private provision through voluntary contributions of households

Optimization in portfolio using maximum downside deviation stochastic programming model

Xiaoli Lu VA Cooperative Studies Program, Perry Point, MD

On the Style Switching Behavior of Mutual Fund Managers

Monetary Tightening Cycles and the Predictability of Economic Activity. by Tobias Adrian and Arturo Estrella * October 2006.

Interval Estimation for a Linear Function of. Variances of Nonnormal Distributions. that Utilize the Kurtosis

02_EBA2eSolutionsChapter2.pdf 02_EBA2e Case Soln Chapter2.pdf

Transcription:

Testng for Omtted Varables Jeroen Weese Department of Socology Unversty of Utrecht The Netherlands emal J.weese@fss.uu.nl tel +31 30 2531922 fax+31 30 2534405 Prepared for North Amercan Stata users meetng Boston, March 2001 testomt 1/8 jeroen weese March 21, 2001

A short recap: Classc testng methods The three classc lkelhood-based approaches to test smooth hypotheses about parameters H : g( ) = 0, LR test: estmate model wth and wthout constrant g ( ) = 0. A large derence between t statstcs (e.g., devance) s evdence aganst H. Wald test: estmate the model wthout the constrant. Test whether the parameters satsfy a lnearzed verson of the constrant. (ecent) Score/Lagrange Multpler test: estmate the restrcted model. If the t crteron (log-lk) sharply ncreases n drectons away from the constrant, ths s evdence aganst the constrant. testomt 2/8 jeroen weese March 21, 2001

How to choose? Methods are often asymptotcally equvalent (under the null). Lkely, the hgher order asymptotc propertes of LR are better. Lttle s known n general about small sample propertes. Computatons may vary wdely It may be hard to estmate the restrcted model (e.g., non-lnear constrants g) It may be hard to estmate the unrestrcted model (e.g., n random eects/coef models, n whch the restrcton eectvely elmnates the random eects/coefs) testomt 3/8 jeroen weese March 21, 2001

Omtted varables n lnear form models Dd I use the rght set of predctor varables? non-lnear transformatons of an ncluded x-var (e.g., a squared term) s t rght to treat a varable as an nterval varable, or should t be treated as a categorcal varable (e.g., level of educaton) nteractons between x-varables What about some of the varables that I dd not enter n the model? (To hell wth theory!) Sometmes ths may nvolve ancllary parameters, e.g. the scale parameter n regresson-type models the between-equaton correlaton n selecton models the cutponts n an ordnal regresson model We typcally assume that these parameters are constant between subjects, but there s consderable attenton to heteroscedastcty ssues n regresson-style models, not so n other regresson-type models. testomt 4/8 jeroen weese March 21, 2001

Score testng for omtted varables n lf models Parameters a parameter-vector parttoned as = (, ), 1 2 and ˆ =(ˆ, 0). 0 1 x x11 x22 1 2 are the parameters of the restrcted model are assocated wth the omtted varables. Lnear predctor: lp = = + l s log-lkelhood contrbuton of -th observatons The score statstc l() l() U()= = x = sx lp Stata calls s a score varable. Let U ( ) = U( ) = sx It depends on the estmator only va s testomt 5/8 jeroen weese March 21, 2001

score tests Score tests are based on the large sample dstrbuton under H of the quadratc form 1 U (ˆ ) var( U) U (ˆ ) l() The score varable has to be evaluated under ˆ lp 0. And so t s computed f a score() estmatngthe restrcted model. 0 2 U E l 0 0 0 2 k opton s speced whle How to estmate var( U)? The classc model-based estmator uses the fact under under regularty condtons, var( ) = () = I ( ) and so ths requres addtonal nformaton about the model that was estmated, namely the (expected) Fsher nformaton. An alternatve based on the hessan / observed nformaton s feasble. Yet another alternatve s the outer-product of gradents estmator, U (ˆ ) U (ˆ )= 2 s xx Ths requres only the score varable s. The modcaton of the OPG estmator to the case of clustered observatons and complex survey data s straghtforward. testomt 6/8 jeroen weese March 21, 2001

Desgn consderatons for a Stata command Language to specfy potentally omtted varables varables not yet n model (lp), transformatons of varables already n model (lp) factoral versons of vars n model (lp) Quadratc extenson of the current model (lp) Derent types of tests Lkelhood rato test Wald Score test, wth three estmator of the varance of the scores Unvarate as well as smultaneous tests. Adjusted P-values (Bonferron, Holm, Sdak,... ) testomt 7/8 jeroen weese March 21, 2001

Contnuaton The presentaton contnues wth the presenatons of the command (boston.do) testomt 8/8 jeroen weese March 21, 2001