Exact properties of the conditional likelihood ratio test in an IV regression model

Grant Hillier ()
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Grant Hillier: Institute for Fiscal Studies and University of Southampton

No CWP23/06, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract:

This paper was revised in May 2007.

For a simplified structural equation/IV regression model with one right-side endogenous variable, we obtain the exact conditional distribution function for Moreira's (2003) conditional likelihood ratio (CLR) test. This is then used to obtain the critical value function needed to implement the CLR test, and reasonably comprehensive graphical versions of the function are provided for practical use. The analogous functions are also obtained for the case of testing more than one right-side endogenous coefficient, but only for an approximation to the true likelihood ratio test. We then go on to provide an exact analysis of the power functions of the CLR test, the Anderson-Rubin test, and the LM test suggested by Kleibergen (2002). The CLR test is shown to clearly conditionally dominate the other two tests for virtually all parameter configurations, but none of these test is either inadmissible or uniformly superior to the other two.

Pages: 44 pp.
Date: 2006-10-30
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: EXACT PROPERTIES OF THE CONDITIONAL LIKELIHOOD RATIO TEST IN AN IV REGRESSION MODEL (2009)
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