Theoretical Elements Regarding the Tests of Significance Based on Instrumental Variables

Constantin Anghelache and Marius Popovici
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Constantin Anghelache: Academia de Studii Economice, Bucuresti
Marius Popovici: Academia de Studii Economice, Bucuresti

Romanian Statistical Review Supplement, 2015, vol. 63, issue 9, 82-90

Abstract: The theoretical aspects of the instrumental variable tests commonly used in linear models represents the object of this article: Sargan’s test of overidentifying restrictions, and Durbin-Hausman-Wu test based on the OLS-IV contrasts. The problems generated by these tests come from the potential rank deficiency of a certain moment matrix. The error potential of these tests was interesting for certain authors.Accordin to theory, the error potential is applicable to certain testing procedures based on liniar instrumental variable estimators. Another potential problem regarding IV missinterpretation error testing is the invalidation of the asymptotic distribution theory by the erroneous character of the matrix of correlation between the regression parameters and instruments. There were used orthogonal groups of matrices and their invariance proprerties. The theory of group invariance simplifies the complicated distributions most of the time.

Keywords: invariance; testing; distribution; restriction; matrices (search for similar items in EconPapers)
Date: 2015
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