Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/146168
Authors: 
Breunig, Christoph
Hoderlein, Stefan
Year of Publication: 
2016
Series/Report no.: 
SFB 649 Discussion Paper 2015-053
Abstract: 
In this paper, we suggest and analyze a new class of specification tests for random coefficient models. These tests allow to assess the validity of central structural features of the model, in particular linearity in coefficients and generalizations of this notion like a known nonlinear functional relationship. They also allow to test for degeneracy of the distribution of a random coefficient, i.e., whether a coefficient is fixed or random, including whether an associated variable can be omitted altogether. Our tests are nonparametric in nature, and use sieve estimators of the characteristic function. We analyze their power against both global and local alternatives in large samples and through a Monte Carlo simulation study. Finally, we apply our framework to analyze the specification in a heterogeneous random coefficients consumer demand model.
Subjects: 
nonparametric specification testing
random coefficients
unobserved heterogeneity
sieve minimum distance
characteristic function
consumer demand
JEL: 
C12
C14
Document Type: 
Working Paper

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