nlexpect: Compute expectation of a function of the coefficients.

Description

Use integration of the joint distribution of the coefficients to compute the expectation of some function of the coefficients. Can be used for non-linear inference tests.

Usage

nlexpect(est, fun, coefs, ..., tol = getOption("lfe.etol"), lhs = NULL, cv,
  istats = FALSE, flags = list(verbose = 0), max.eval = 200000L,
  method = c("hcubature", "pcubature", "cuhre", "suave"), vectorize = FALSE)

Arguments

est

object of class "felm", a result of a call to felm.

fun

function of coefficients to be integrated. Can also be a quoted expression.

coefs

character. Names of coefficients to test. Only needed if fun is a function.

...

other arguments passed to fun or the integration routine.

tol

numeric. Tolerance for the computed integral.

lhs

character. Name of the left hand side, if est has more than one.

Covariance matrix to use in place of vcov(est)

istats

logical. Should convergence information from the integration routine be included as attributes?

flags

list. Additional flags for the underlying integration routine. Not used after the package R2Cuba disappeared.

max.eval

integer. Maximum number of integral evaluations.

method

character. Either "hcubature" (default) or "pcubature" from package cubature. The documentation there says that "pcubature" is good for smooth integrands of low dimensions.

vectorize

logical. Use vectorized function evaluation from package cubature. This can speed up integration significantly.

Value

The function nlexpect computes and returns the expectation of the function fun(beta), with beta a vector of coefficients. I.e., if the coefficients beta are bootstrapped a large number of times, nlexpect(est, fun) should be equal to mean(fun(beta)).

Details

The function nlexpect integrates the function fun(x) over the multivariate normal distribution specified by the point estimates and the covariance matrix vcov(est). This is the expectation of fun(beta) if we were to bootstrap the data (e.g. by drawing the residuals anew) and do repeated estimations.

The list of coefficients used by fun must be specified in coefs.

If the function is simple, it can be specified as a quoted expression like quote(a*b+log(abs(d))). In this case, if coefs is not specified, it will be set to the list of all the variables occuring in the expression which are also names of coefficients.

fun may return a vector of values, in which case a vector of expectations is computed, like quote(c(a*b, a^3-b)). However, if the expressions contain different variables, like quote(c(a*b, d*e)), a quite compute intensive 4-dimensional integral will be computed, compared to two cheap 2-dimensional integrals if you do them separately. There is nothing to gain from using vector-valued functions compared to multiple calls to nlexpect().

You may of course also integrate inequalites like quote(abs(x1-0.2) > 0.2) to simulate the probability from t-tests or Wald-tests. See the examples.

The function you provide will get an argument ... if it does not have one already. It will also be passed an argument .z which contains the actual coefficients in normalized coordinates, i.e. if ch is the Cholesky decomposition of the covariance matrix, and pt are the point estimates, the coefficients will be pt + ch %*% .s. The first argument is a vector with names corresponding to the coefficients.

If you specify vectorized=TRUE, your function will be passed a list with vectors in its first argument. The function must be able to handle a list, and must return a vector of the same length as the vectors in the list. If you pass an expression like x < y, each variable will be a vector. If your function is vector valued, it must return a matrix where each column is the values.

The tol argument specifies both the relative tolerance and the absolute tolerance. If these should not be the same, specify tol as a vector of length 2. The first value is the relative tolerance, the second is the absolute tolerance. Termination occurs when at least one of the tolerances is met.

The ... can be used for passing other arguments to the integration routine.

Examples

Run this code

# NOT RUN {
N <- 100
x1 <- rnorm(N)
# make some correlation
x2 <- 0.1*rnorm(N) + 0.1*x1
y <- 0.1*x1 + x2 + rnorm(N)
summary(est <- felm(y ~ x1 + x2))
pt1 <- coef(est)['x1']
pt2 <- coef(est)['x2']
# expected values of coefficients, should match the summary
# and variance, i.e. square of standard errors in the summary
nlexpect(est, quote(c(x1=x1,x2=x2,var=c((x1-pt1)^2,(x2-pt2)^2))))
# }
# NOT RUN {
# the covariance matrix:
nlexpect(est, tcrossprod(as.matrix(c(x1-pt1,x2-pt2))))
# }
# NOT RUN {
#Wald test of single variable
waldtest(est, ~x1)['p.F']
# the same with nlexpect, i.e. probability for observing abs(x1)>abs(pt1) conditional
# on E(x1) = 0.
nlexpect(est, (x1-pt1)^2 > pt1^2, tol=1e-7, vectorize=TRUE)
# which is the same as
2*nlexpect(est, x1*sign(pt1) < 0)

# Here's a multivalued, vectorized example
nlexpect(est, rbind(a=x1*x2 < pt1, b=x1*x2 > 0), vectorized=TRUE)
# }
# NOT RUN {
# Non-linear test:

# A simple one, what's the probability that product x1*x2 is between 0 and |E(x1)|?
nlexpect(est, x1*x2 > 0 & x1*x2 < abs(pt1), vectorized=TRUE)
# Then a more complicated one with the expected value of a polynomal in the coefficients
f <- function(x) c(poly=x[['x1']]*(6*x[['x1']]-x[['x2']]^2))
# This is the linearized test:
waldtest(est, f)['p.F']
# In general, for a function f, the non-linear Wald test is something like
# the following:
# expected value of function
Ef <- nlexpect(est, f, coefs=c('x1','x2'))
# point value of function
Pf <- f(c(pt1,pt2))
# similar to a Wald test, but non-linear:
nlexpect(est, function(x) (f(x)-Ef)^2 > Pf^2, c('x1','x2'), vectorize=TRUE)
# one-sided
nlexpect(est, function(x) f(x)-Ef > abs(Pf), c('x1','x2'), vectorize=TRUE)
# other sided
nlexpect(est, function(x) f(x)-Ef < -abs(Pf), c('x1','x2'), vectorize=TRUE)
# }
# NOT RUN {
# }