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Testing for separability in structural equations. (English) Zbl 1311.62068
Summary: Separability is an important feature of structural equations, as it implies the absence of unobservable heterogeneity of effects and has significant implications for identification and efficiency of estimation. This paper provides a nonparametric test for separability in structural equations. The test is based on a conditional independence test recently developed by M. Huang, Y. Sun and H. White [“A flexible nonparametric test for conditional independence”, Preprint (2013; doi:10.2139/ssrn.2277240)], building on consistent procedures of H. J. Bierens [J. Econom. 20, 105–134 (1982; Zbl 0549.62076); Econometrica 58, No. 6, 1443–1458 (1990; Zbl 0737.62058)] and M. Stinchcombe and H. White [Econom. Theory 14, No. 3, 295–324 (1998; Zbl 1419.62105)]. The test is easy to implement and achieves \(\sqrt{n}\) local power. We apply our test to study interest rate elasticities of loan demand in microfinance and the impact of education on wages.

MSC:
62G10 Nonparametric hypothesis testing
62P20 Applications of statistics to economics
91B40 Labor market, contracts (MSC2010)
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