Testing the Exclusion Restriction in IV Models Using Non-Gaussianity: A LiNGAM-Based Approach

Fernando Delbianco

Papers from arXiv.org

Abstract: Instrumental variable (IV) methods rely critically on the exclusion restriction, which is untestable in exactly-identified models under standard assumptions. We propose a framework combining IV analysis with the LiNGAM method to test this restriction by exploiting non-Gaussianity in the data. Under non-Gaussian structural errors, the exclusion violation parameter is point-identified without additional instruments. Five complementary tests (bootstrap percentile, asymptotic normal, permutation, likelihood ratio, and independence-based) are introduced to assess the restriction under varying data conditions. Monte Carlo simulations and an empirical application to the Card (1995) dataset demonstrate controlled Type I error rates and reasonable power against economically relevant violations.

Date: 2026-03
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-ets
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