An 'Expanded Equation' Approach to Weak-Exogeneity Tests in Structural Systems and a Monetary Application

Nagesh S Revankar and Naoyuki Yoshino ()

The Review of Economics and Statistics, 1990, vol. 72, issue 1, 173-77

Abstract: Let y (subscript "a"), y (subscript "b") denote the endogenous variables in a conventional structural system. The paper presents a simple test of H (subscript "o") : y (subscript "a") is weakly exogenous with respect to y (subscript "b")'s structural equation system (SES [subscript "b"]). The test is a test of whether y (subscript "a")'s reduced form residuals have zero coefficients in an "expanded equation" system (EES [subscript "b"]), which is the conditional version of the SES (subscript "b"), conditional on y (subscript "a"). It is implemented empirically to test whether the Fed was successful in controlling the federal funds rate over the regime in question. The paper also presents a generalization of Hausman's "difference test," a comparative view of most available tests, and some exact relations among the structural estimators. Copyright 1990 by MIT Press.

Date: 1990
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