On the validity of Durbin-Wu-Hausman tests for assessing partial exogeneity hypotheses with possibly weak instruments

Firmin Doko Tchatoka

No 15061, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: We investigate the validity of the standard specification tests for assessing the exogeneity of subvectors in the linear IV regression. Our results show that ignoring the endogeneity of the regressors whose exogeneity is not being tested leads to invalid tests (level is not controlled). When the fitted values from the first stage regression of these regressors are used as instruments under the partial null hypothesis of interest, as suggested Hausman and Taylor (1980, 1981), some versions of these tests are invalid when identification is weak and the number of instruments is moderate. However, all tests are overly conservative and have no power when the number of instruments increases, even for moderate identification strength.

Keywords: Partial exogeneity; sized distortions; weak identification (search for similar items in EconPapers)
JEL-codes: C12 C15 C3 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2012-07-06, Revised 2012-07-06
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Citations: View citations in EconPapers (4)

Published by the University of Tasmania. Discussion paper 2012-04

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Related works:
Working Paper: On the Validity of Durbin-Wu-Hausman Tests for Assessing Partial Exogeneity Hypotheses with Possibly Weak Instruments (2012)
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