Econometrica Vol. 83 No. 2 2015
Nearly Optimal Tests When a Nuisance Parameter Is Present Under the Null Hypothesis
Abstract
This paper considers nonstandard hypothesis testing problems that involve a nuisance parameter. We establish an upper bound on the weighted average power of all valid tests, and develop a numerical algorithm that determines a feasible test with power close to the bound. The approach is illustrated in six applications: inference about a linear regression coefficient when the sign of a control coefficient is known; small sample inference about the difference in means from two independent Gaussian samples from populations with potentially different variances; inference about the break date in structural break models with moderate break magnitude; predictability tests when the regressor is highly persistent; inference about an interval identified parameter; and inference about a linear regression coefficient when the necessity of a control is in doubt.
- DOI
- 10.3982/ecta10535
- Volume
- 83
- Issue
- 2
- Pages
- 771-811
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref