A Test for Instrument Validity

Toru Kitagawa

No 34/14, CeMMAP working papers from Institute for Fiscal Studies

Abstract: This paper develops a specification test for instrument validity in the heterogeneous treatment effect model with a binary treatment and a discrete instrument. The strongest testable implication for instrument validity is given by the condition for non-negativity of point- identifiable complier’s outcome densities. Our specification test infers this testable implication using a variance-weighted Kolmogorov-Smirnov test statistic. Implementation of the proposed test does not require smoothing parameters, even though the testable implications involve non-parametric densities. The test can be applied to both discrete and continuous outcome cases, and an extension of the test to settings with conditioning covariates is provided.

Date: 2014-08-19
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Persistent link: https://EconPapers.repec.org/RePEc:azt:cemmap:34/14

DOI: 10.1920/wp.cem.2014.3414

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