Specification tests with weak and invalid instruments

Firmin Doko Tchatoka

No 15063, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: We investigate the size of the Durbin-Wu-Hausman tests for exogeneity when instrumental variables violate the strict exogeneity assumption. We show that these tests are severely size distorted even for a small correlation between the structural error and instruments. We then propose a bootstrap procedure for correcting their size. The proposed bootstrap procedure does not require identification assumptions and is also valid even for moderate correlations between the structural error and instruments, so it can be described as robust to both weak and invalid instruments.

Keywords: Exogeneity tests; weak instruments; instrument endogeneity; bootstrap technique. (search for similar items in EconPapers)
JEL-codes: C12 C15 C3 C52 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2012-06-26, Revised 2012-06-26
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published by the University of Tasmania. Discussion paper 2010-06

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Related works:
Working Paper: Specification Tests with Weak and Invalid Instruments (2014)
Working Paper: Specification Tests with Weak and Invalid Instruments (2012)
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