Testing for Monotonicity under Endogeneity An Application to the Reservation Wage FunctionNo 673, Economics Series Working Papers from University of Oxford, Department of Economics Abstract: This paper develops a test for monotonicity of nonparametric regression models under endogeneity, which in its generality is novel in the literature. The test statistic, which is built upon a second order U-process, introduces 'correction terms' based on control functions that purge the endogeneity. The test has a non-standard asymptotic distribution from which asymptotic critical values can directly be derived. Furthermore, the test statistic is extended to accommodate multivariate (exogenous) regressors. Consistency against general alternatives is proved and the test's finite sample properties are examined in a Monte Carlo experiment. The test is used to formally assess the monotonicity of the reservation wage as a declining function of elapsed unemployment duration. This relationship is difficult to measure due to the simultaneity of both variables. Preliminary results indicate that reservation wage functions do in fact not decline monotonically. Keywords: control function; endogeneity; reservation wages; test for monotonicity (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:673 Access Statistics for this paper More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC. |
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