Testing exogeneity under distributional misspecification

Xavier de Luna and Per Johansson
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Xavier de Luna: IFAU - Office of Labour Market Policy Evaluation, Postal: Labour Market Policy Evaluation, P O Box 513, SE-751 20 Uppsala, Sweden, http://www.ifau.se

No 2001:9, Working Paper Series from IFAU - Institute for Evaluation of Labour Market and Education Policy

Abstract: We propose a general test for exogeneity that is robust against distributional misspecification. The test can also be used to identify other types of misspecifications, such as the presence of a random coefficient. The idea is to sort the data with respect to a variable (a sorting score) and then split the sample into two parts. Using a Chow test, it can then be tested whether estimated parameters in the two sub-samples are different. We give conditions under which it is possible to test for exogeneity by using the (supposedly) endogenous variable as a sorting score. The resulting test does not need instrumental variables. Evidence from a Monte Carlo study and an empirical application suggets that the test can be useful for practitioners.

Keywords: Absenteeism at work; endogeneity; linear exponential family; random effect; random coefficient; selectivity (search for similar items in EconPapers)
JEL-codes: C12 C14 C15 C21 C31 C52 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2001-07-18
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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