Question

Econometrics Question:
Explain the differences between the Wald, likelihood ratio and Lagrange Multiplier approaches to hypothesis testing.

Answer 1

Wald - Wald is an approach which includes one model and the comparisons and estimations around it. It involves testing the null hypothesis of the model in question.

Likelihood ratio - A likelihood ratio is an approach which involves/includes comparisons and estimations around two statistical models. This essentially is a comparison of the fit of one model to that of another's. It includes finding out the log likelihoods of both the models.

Lagrange Multiplier - The Lagrange Multiplier approach also involves only one model like the Wald approach. Here the estimations are done on the basis of calculating the slope of the likelihood function.

answered by: anonymous