Practical Steps to Improve Specification Testing

Austin Nichols, Mark Edwin Schaffer

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Testing of null hypotheses about model parameters, with a dichotomous choice of reject or not, has come under heavy fire from many quarters of late, but the same attention has not been paid to specification tests. We outline a framework for improving specification tests that accepts the dichotomous choice of rejecting a model or not in a very small class of cases (where results are entirely uninterpretable upon rejecting the null, as in the case of underidentification), but argues for more informative testing in most cases. The Arellano (1993) version of Hausman’s (1978) specification test is one example where results can be more informative. We also provide a novel example of more informative testing in the case of White’s test of heteroskedasticity. In general, we argue that the researcher should generically not reject a model based on misspecification tests, but should describe the sensitivity of estimation or inference to potential violations of assumptions using more informative specification tests.
Original languageEnglish
Title of host publicationPrediction and Causality in Econometrics and Related Topics
EditorsNgoc Thach Nguyen, Doan Thanh Ha, Duc Trung Nguyen, V. Kreinovich
PublisherSpringer
Pages75-88
Number of pages14
ISBN (Electronic)9783030770945
ISBN (Print)9783030770938
DOIs
Publication statusE-pub ahead of print - 27 Jul 2021
Event4th International Econometric Conference of Vietnam 2021 - Banking University of Ho-Chi-Minh City, Ho-Chi-Minh City, Viet Nam
Duration: 11 Jan 202113 Jan 2021
Conference number: 4

Publication series

NameStudies in Computational Intelligence
PublisherSpringer
Volume983
ISSN (Print)1860-949X
ISSN (Electronic)1860-9503

Conference

Conference4th International Econometric Conference of Vietnam 2021
Country/TerritoryViet Nam
CityHo-Chi-Minh City
Period11/01/2113/01/21

Keywords

  • Econometrics
  • Specification testing

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