A General Theory of Hypothesis Testing in the Simultaneous Equations Model

Marcelo Moreira

No 1992, Harvard Institute of Economic Research Working Papers from Harvard - Institute of Economic Research

Abstract: Classical exponential-family statistical theory is employed to characterize the class of exactly similar tests for a structural coefficient in a simultaneous equations model with normal errors and known reduced-form covariance matrix. We also find a necessary condition for tests to be unbiased and derive their power envelope. When the model is just-identified, we show that the Anderson-Rubin score, and conditioal likelihood ratio tests are optimal. When the model is over-identified, there exists no optimal tests. Nevertheless, Monte Carlo simulations indicate that the power curve of the conditional likelihood ratio tests is reasonably close to the power envelope.

Date: 2003
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