The behavior of exact tests for homogeneity ( F and Hotelling T 2 ) is compared with size‐adjusted LR tests in the linearized AIDS model with different approximating price indexes (Stone, Paasche, Laspeyres). The Monte Carlo evidence shows that test size distortions are sensitive to the correlation structure of prices, the time‐series properties of the data, and the choice of price index. None of the results explains the persistent over‐rejection of homogeneity in applied work.
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A. Buse (1998) studied this question.
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