A nonparametric test of exogeneity

Richard Blundell () and Joel Horowitz ()
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Joel Horowitz: Institute for Fiscal Studies and Northwestern University

No CWP15/04, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: This paper is concerned with inference about a function g that is identified by a conditional moment restriction involving instrumental variables. The function is nonparametric. It satisfies mild regularity conditions but is otherwise unknown. The paper presents test of the hypothesis that g is the mean of a random variable Y conditional on a covariate X . The need to test this hypothesis arises frequently in economics. The test does not require nonparametric instrumental-variables (IV) estimation of g and is not subject to the ill-posed inverse problem that nonparametric IV estimation entails. The test is consistent whenever g differs from the conditional mean function of Y on a set of non-zero probability. Moreover, the power of the test is arbitrarily close to 1 uniformly over a set of functions g whose distance from the conditional mean function is O(n-1/2), where is the sample size.

Keywords: Hypothesis test; instrumental variables; specification testing; consistent testing (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2004-12
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Related works:
Journal Article: A Non-Parametric Test of Exogeneity (2007)
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