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Licensed Unlicensed Requires Authentication Published by De Gruyter January 22, 2016

Teaching Size and Power Properties of Hypothesis Tests Through Simulations

Süleyman Taşpınar and Osman Doğan

Abstract

In this study, we review the graphical methods suggested in Davidson and MacKinnon (Davidson, Russell, and James G. MacKinnon. 1998. “Graphical Methods for Investigating the Size and Power of Hypothesis Tests.” The Manchester School 66 (1): 1–26.) that can be used to investigate size and power properties of hypothesis tests for undergraduate and graduate econometrics courses. These methods can be used to assess finite sample properties of various hypothesis tests through simulation studies. In addition, these methods can be effectively used in classrooms to reinforce students’ understanding of basic hypothesis testing concepts such as Type I error, Type II error, size, power, p-values and under-or-over-sized tests. We illustrate the procedural aspects of these graphical methods through Monte Carlo experiments, and provide the implementation codes written in Matlab and R for the classroom applications.

JEL Classification: C13; C21; C31

Corresponding author: Süleyman Taşpınar, Economics Program, Queens College, The City University of New York, USA, E-mail:

Acknowledgments

This research was supported, in part, by a grant of computer time from the City University of New York High Performance Computing Center under NSF Grants CNS-0855217 and CNS-0958379.

Appendix

Listing 1: R Codes for P Value Plots and P Value Discrepancy Plots.

Listing 2: R Codes for Size-Power Curves.

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Published Online: 2016-1-22
Published in Print: 2017-1-1

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