Specification Tests with Weak and Invalid Instruments

Firmin Doko Tchatoka

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate the size of the Durbin-Wu-Hausman tests for exogeneity when instrumental variables violate the strict exogeneity assumption. We show that these tests are severely size distorted even for a small correlation between the structural error and instruments. We then propose a bootstrap procedure for correcting their size. The proposed bootstrap procedure does not require identification assumptions and is also valid even for moderate correlations between the structural error and instruments, so it can be described as robust to both weak and invalid instruments.

Keywords: Exogeneity tests; weak instruments; instrument endogeneity; bootstrap technique (search for similar items in EconPapers)
JEL-codes: C1 C12 C15 C30 (search for similar items in EconPapers)
Date: 2012-07-20
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Specification Tests with Weak and Invalid Instruments (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:40185

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