Model Selection Tests for Conditional Moment Inequality Models

In this paper, we propose a Vuong (1989)-type model selection test for conditional moment inequality models. The test uses a new average generalized empirical likelihood (AGEL) criterion function designed to incorporate full restriction of the conditional model. We also introduce a new adjustment to the test statistic making it asymptotically pivotal whether the candidate models are nested or nonnested. The test uses simple standard normal critical value and is shown to be asymptotically similar, to be consistent against all fixed alternatives and to have nontrivial power against n-1/2-local alternatives. Monte Carlo simulations demonstrate that the finite sample performance of the test is in accordance with the theoretical prediction.