COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. xxx

Testing for Non-Nested Conditional Moment Restrictions
Using Unconditional Empirical Likelihood

Taisuke Otsu, Myung Hwan Seo and Yoon-Jae Whang

May 2008

We propose non-nested hypotheses tests for conditional moment restriction models based on the method of generalized empirical likelihood (GEL). By utilizing the implied GEL probabilities from a sequence of unconditional moment restrictions that contains equivalent information of the conditional moment restrictions, we construct Kolmogorov-Smirnov and Cramer-von Mises type moment encompassing tests. Advantages of our tests over Otsu and Whang's (2007) tests are: (i) they are free from smoothing parameters, (ii) they can be applied to weakly dependent data, and (iii) they allow non-smooth moment functions. We derive the null distributions, validity of a bootstrap procedure, and local and global power properties of our tests. The simulation results show that our tests have reasonable size and power performance in finite samples.

Keywords: Empirical likelihood, Non-nested tests, Conditional moment restrictions

JEL Classification: C12, C13, C14, C22