A Test for Instrument Validity

Toru Kitagawa (t.kitagawa@ucl.ac.uk)
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Toru Kitagawa: Institute for Fiscal Studies and University College London

No CWP34/14, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: This paper develops a specification test for instrument validity in the heterogeneous treatment effect model with a binary treatment and a discrete instrument. The strongest testable implication for instrument validity is given by the condition for non-negativity of point- identifiable complier’s outcome densities. Our specification test infers this testable implication using a variance-weighted Kolmogorov-Smirnov test statistic. Implementation of the proposed test does not require smoothing parameters, even though the testable implications involve non-parametric densities. The test can be applied to both discrete and continuous outcome cases, and an extension of the test to settings with conditioning covariates is provided.

Date: 2014-08-19
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (4)

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