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Testing for stochastic monotonicity

Lee, S.; Linton, O.; Whang, Y.-J.; (2008) Testing for stochastic monotonicity. (cemmap Working Papers CWP21/). Institute for Fiscal Studies: London, UK. Green open access

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Abstract

We propose a test of the hypothesis of stochastic monotonicity. This hypothesis is of interest in many applications in economics. Our test is based on the supremum of a rescaled U-statistic. We show that its asymptotic distribution is Gumbel. The proof is difficult because the approximating Gaussian stochastic process contains both a stationary and a nonstationary part and so we have to extend existing results that only apply to either one or the other case. We also propose a refinement to the asymptotic approximation that we show works much better in finite samples. We apply our test to the study of intergenerational income mobility.

Type: Working / discussion paper
Title: Testing for stochastic monotonicity
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.cemmap.ac.uk/publications.php?publicati...
Language: English
Keywords: C14, C15
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/14667
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