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

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Doko Tchatoka, F (2012) On the validity of Durbin-Wu-Hausman tests for assessing partial exogeneity hypotheses with possibly weak instruments. Discussion Paper. University of Tasmania. (Unpublished)

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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.

Item Type: Report (Discussion Paper)
Keywords: Partial exogeneity; sized distortions; weak identification, ReREc
Publisher: University of Tasmania
Additional Information: Copyright 2012 University of Tasmania
Date Deposited: 20 Sep 2012 03:33
Last Modified: 18 Nov 2014 04:42
URI: http://eprints.utas.edu.au/id/eprint/15061
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