Inference on Functionals under First Order Degeneracy

Résumé 0

This paper presents a unified second order asymptotic framework for conducting inference on parameters of the form $\phi(\theta_0)$, where $\theta_0$ is unknown but can be estimated by $\hat\theta_n$, and $\phi$ is a known map that admits null first order derivative at $\theta_0$. For a large number of examples in the literature, the second order Delta method reveals a nondegenerate weak limit for the plug-in estimator $\phi(\hat\theta_n)$. We show, however, that the `standard' bootstrap is consistent if and only if the second order derivative $\phi_{\theta_0}''=0$ under regularity conditions, i.e., the standard bootstrap is inconsistent if $\phi_{\theta_0}''\neq 0$, and provides degenerate limits unhelpful for inference otherwise. We thus identify a source of bootstrap failures distinct from that in Fang and Santos (2018) because the problem (of consistently bootstrapping a \textit{nondegenerate} limit) persists even if $\phi$ is differentiable. We show that the correction procedure in Babu (1984) can be extended to our general setup. Alternatively, a modified bootstrap is proposed when the map is \textit{in addition} second order nondifferentiable. Both are shown to provide local size control under some conditions. As an illustration, we develop a test of common conditional heteroskedastic (CH) features, a setting with both degeneracy and nondifferentiability -- the latter is because the Jacobian matrix is degenerate at zero and we allow the existence of multiple common CH features.