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Horowitz, Joel L.
Lee, Sokbae
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cemmap working paper, Centre for Microdata Methods and Practice CWP02/07
This paper is concerned with inference about a function g that is identified by a conditional quantile restriction involving instrumental variables. The paper presents a test of the hypothesis that g belongs to a finite-dimensional parametric family against a nonparametric alternative. The test is not subject to the ill-posed inverse problem of nonparametric instrumental variables estimation. Under mild conditions, the test is consistent against any alternative model. In large samples, its power is arbitrarily close to 1 uniformly over a class of alternatives whose distance from the null hypothesis is O (n1/2), where n is the sample size. Monte Carlo simulations illustrate the finite-sample performance of the test.
Hypothesis test , quantile estimation , instrumental variables , specification testing , consistent testing
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Working Paper

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