Nonparametric Estimation of Truncated Conditional Expectation Functions

Understand

Truncated conditional expectation functions are objects of interest in a wide range of economic applications, including income inequality measurement, financial risk management, and impact evaluation.

• They typically involve truncating the outcome variable above or below certain quantiles of its conditional distribution.
• In this paper, based on local linear methods, a novel, two-stage, nonparametric estimator of such functions is proposed.
• In this estimation problem, the conditional quantile function is a nuisance parameter that has to be estimated in the first stage.