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The Effect of Pseudo-exogenous Instrumental Variables on Hausman Test

Jeong, Jinook and Yoon, Byung (2007): The Effect of Pseudo-exogenous Instrumental Variables on Hausman Test.

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Abstract

This paper investigates the potential problem of ‘pseudo-exogenous’ instruments in regression models. We show that the performance of Hausman test is deteriorated when the instruments are asymptotically exogenous but endogenous in finite samples, through Monte Carlo simulations.

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