power

Local Asymptotics: The Simplest Possible Example

If you study enough econometrics, you will eventually come across an asymptotic argument in which some parameter is assumed to change with sample size. This peculiar notion goes by a variety of names including “Pitman drift,” a “sequence of local alternatives,” and “local mis-specification,” and crops up in a wide range of problems from weak instruments, to model selection, to power analysis.