Munich Personal RePEc Archive

On the Validity of Durbin-Wu-Hausman Tests for Assessing Partial Exogeneity Hypotheses with Possibly Weak Instruments

Doko Tchatoka, Firmin (2012): On the Validity of Durbin-Wu-Hausman Tests for Assessing Partial Exogeneity Hypotheses with Possibly Weak Instruments.

[img]
Preview
PDF
MPRA_paper_40184.pdf

Download (95Kb) | Preview

Abstract

We investigate the validity of the standard specification tests for assessing the exogeneity of subvectors in the linear IV regression. Our results show that ignoring the endogeneity of the regressors whose exogeneity is not being tested leads to invalid tests (level is not controlled). When the fitted values from the first stage regression of these regressors are used as instruments under the partial null hypothesis of interest, as suggested Hausman and Taylor (1980, 1981), some versions of these tests are invalid when identification is weak and the number of instruments is moderate. However, all tests are overly conservative and have no power when the number of instruments increases, even for moderate identification strength.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.