Exact Testing of Many Moment Inequalities Against Multiple Violations

Abstract: This paper considers the problem of testing many moment inequalities, where the number of moment inequalities ($p$) is possibly larger than the sample size ($n$). Chernozhukov et al. (2019) proposed asymptotic tests for this problem using the maximum $t$ statistic. We observe that such tests can have low power if multiple inequalities are violated. As an alternative, we propose novel randomization tests based on a maximum non-negatively weighted combination of $t$ statistics. We provide a condition guaranteeing size control in large samples. Simulations show that the tests control size in small samples ($n = 30$, $p = 1000$), and often has substantially higher power against alternatives with multiple violations than tests based on the maximum $t$ statistic.