Economics Seminar: Mikkel Soelvsten, University of Wisconsin

Empirical Economics


3:30 p.m. to 4:30 p.m. May 4, 2021


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Mikkel Soelvsten, Assistant Professor of Economics University of Wisconsin, Madison

Testing Many Restrictions Under Heteroskedasticity


We propose a hypothesis test that allows for many tested restrictions in a heteroskedastic linear regression model. The test compares the conventional F statistic to a critical value that corrects for many restrictions and conditional heteroskedasticity. The correction utilizes leave-one-out estimation to correctly center the critical value and leave-three-out estimation to appropriately scale it. Large sample properties of the test are established in an asymptotic framework where the number of tested restrictions may be fixed or may grow with the sample size and can even be proportional to the number of observations. We show that the test is asymptotically valid and has non-trivial asymptotic power against the same local alternatives as the exact F test when the latter is valid. Simulations corroborate the relevance of these theoretical findings and suggest excellent size control in moderately small samples also under strong heteroskedasticity.

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