Econometrica: May 1998, Volume 66, Issue 3

Instrumental Models and Indirect Encompassing

https://doi.org/0012-9682(199805)66:3<673:IMAIE>2.0.CO;2-R
p. 673-688

Christian Gourieroux, Geert Dhaene, Oliver Scaillet

We introduce nonnested hypotheses tests using indirect, simulation-based estimation procedures. We propose different test statistics and carefully examine the corresponding implicit null hypotheses. A notion of indirect encompassing comes up naturally, which may be compared to the usual encompassing conditions. Then we show how these methods extend standard specification and overidentification tests.

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