The effect of pseudo-exogenous instrumental variables on hausman test

Jinook Jeong, Byung Ho Yoon

Research output: Contribution to journalArticle

5 Citations (Scopus)


Hausman test is popularly used to examine the endogeneity of explanatory variables in a regression model. To derive a well-defined asymptotic distribution of Hausman test, the correlation between the instrumental variables and the error term needs to converge to zero. However, it is possible that there remains considerable correlation in finite samples between the instruments and the error, even though their correlation eventually converges to zero. This article investigates the potential problem that such "pseudo- exogenous" instruments may create. We show that the performance of Hausman test is deteriorated when the instruments are asymptotically exogenous but endogenous in finite samples, through Monte Carlo simulations.

Original languageEnglish
Pages (from-to)315-321
Number of pages7
JournalCommunications in Statistics: Simulation and Computation
Issue number2
Publication statusPublished - 2010 Feb 1

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Modelling and Simulation

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