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Monte Carlo tests with nuisance parameters: a general approach to finite-sample inference and non-standard asymptotics

Author

Listed:
  • Jean-Marie Dufour
Abstract
The technique of Monte Carlo (MC) tests [Dwass (1957), Barnard (1963)] provides an attractive method of building exact tests from statistics whose finite sample distribution is intractable but can be simulated (provided it does not involve nuisance parameters). We extend this method in two ways: first, by allowing for MC tests based on exchangeable possibly discrete test statistics; second, by generalizing the method to statistics whose null distributions involve nuisance parameters (maximized MC tests, MMC). Simplified asymptotically justified versions of the MMC method are also proposed and it is shown that they provide a simple way of improving standard asymptotics and dealing with nonstandard asymptotics (e.g., unit root asymptotics). Parametric bootstrap tests may be interpreted as a simplified version of the MMC method (without the general validity properties of the latter). La technique des tests de Monte Carlo ((MC; Dwass (1957), Barnard (1963)) constitue une méthode attrayante qui permet de construire des tests exacts fondés sur des statistiques dont la distribution exacte est difficile à calculer par des méthodes analytiques mais peut être simulée, pourvu que cette distribution ne dépende pas de paramètres de nuisance. Nous généralisons cette méthode dans deux directions: premièrement, en considérant le cas où le test de Monte Carlo est construit à partir de réplications échangeables d'une variable aléatoire dont la distribution peut comporter des discontinuités; deuxièmement, en étendant la méthode à des statistiques dont la distribution dépend de paramètres de nuisance (tests de Monte Carlo maximisés, MMC). Nous proposons aussi des versions simplifiées de la procédure MMC, qui ne sont valides qu'asymptotiquement mais fournissent néanmoins une méthode simple qui permet d'améliorer les approximations asymptotiques usuelles, en particulier dans des cas non standards (e.g., l'asymptotique en présence de racines unitaires). Nous montrons aussi que les tests basés sur la technique du bootstrap paramétrique peut s'interpréter comme une version simplifiée de la procédure MMC. Cette dernière fournit toutefois des tests asymptotiquement valides sous des conditions beaucoup plus générales que le bootstrap paramétrique.

Suggested Citation

  • Jean-Marie Dufour, 2005. "Monte Carlo tests with nuisance parameters: a general approach to finite-sample inference and non-standard asymptotics," CIRANO Working Papers 2005s-02, CIRANO.
    • Handle: RePEc:cir:cirwor:2005s-02
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    File URL: https://cirano.qc.ca/files/publications/2005s-02.pdf
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    References listed on IDEAS

    as
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    7. Dufour, Jean-Marie & Jasiak, Joann, 2001. "Finite Sample Limited Information Inference Methods for Structural Equations and Models with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 815-843, August.
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    11. Kreps,David M. & Wallis,Kenneth F. (ed.), 1997. "Advances in Economics and Econometrics: Theory and Applications," Cambridge Books, Cambridge University Press, number 9780521589833, September.
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    13. Campbell, Bryan & Dufour, Jean-Marie, 1997. "Exact Nonparametric Tests of Orthogonality and Random Walk in the Presence of a Drift Parameter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(1), pages 151-173, February.
    14. Jean-Marie Dufour & Jan F. Kiviet, 1998. "Exact Inference Methods for First-Order Autoregressive Distributed Lag Models," Econometrica, Econometric Society, vol. 66(1), pages 79-104, January.
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    More about this item

    Keywords

    Monte Carlo test; maximized monte Carlo test; finite sample test; exact test; nuisance parameter; bounds; bootstrap; parametric bootstrap; simulated annealing; asymptotics; nonstandard asymptotic distribution; test de Monte Carlo; test de Monte Carlo maximisé; test exact; test valide en échantillon fini; paramètre de nuisance; bornes; bootstrap; bootstrap paramétrique; recuit simulé; distribution asymptotique non standard;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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