Model specification tests against non-nested alternatives

Abstract

Non-nested hypothesis tests provide a way to test the specification of an econometric model against the evidence provided by one or more non-nested alternatives. This paper surveys the recent literature on non-nested hypothesis testing in the context of regression and related models. Much of the purely statistical 1iterature which has evolved from the fundamental work of Cox (1961, 1962) is discussed briefly or not at all. Instead, emphasis is placed on those techniques which are easy to employ in practice and are likely to be useful to applied workers.