Nonnested alternative tests o If the models have the same dependent variables, but nonnested x's could still just make a giant model with the x's from both and test joint exclusion restrictions that lead to one model or the other An alternative. the Davidson -MacK innon test, uses y from one model as regressor in the second model and tests for significance Economics 20- Prof anderson 6
Economics 20 - Prof. Anderson 6 Nonnested Alternative Tests If the models have the same dependent variables, but nonnested x’s could still just make a giant model with the x’s from both and test joint exclusion restrictions that lead to one model or the other An alternative, the Davidson-MacKinnon test, uses ŷ from one model as regressor in the second model and tests for significance
Nonnested Alternatives(cont) o More difficult if one model uses y and the other uses In() Can follow same basic logic and transform predicted In() to get y for the second step o In any case, Davidson-MacKinnon test may reject neither or both models rather than clearly preferring one specification Economics 20- Prof anderson 7
Economics 20 - Prof. Anderson 7 Nonnested Alternatives (cont) More difficult if one model uses y and the other uses ln(y) Can follow same basic logic and transform predicted ln(y) to get ŷ for the second step In any case, Davidson-MacKinnon test may reject neither or both models rather than clearly preferring one specification