The effect of pseudo-exogenous instrumental variables on hausman test

Jinook Jeong; Byung Ho Yoon

doi:10.1080/03610910903447833

The effect of pseudo-exogenous instrumental variables on hausman test

Jinook Jeong, Byung Ho Yoon

Department of Economics

Research output: Contribution to journal › Article › peer-review

6 Citations (Scopus)

Abstract

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 language	English
Pages (from-to)	315-321
Number of pages	7
Journal	Communications in Statistics: Simulation and Computation
Volume	39
Issue number	2
DOIs	https://doi.org/10.1080/03610910903447833
Publication status	Published - 2010 Feb

Bibliographical note

Funding Information:
We are grateful for the helpful comments from Professor Dong H. Kim and the participants of NAIS conference at Yonsei University. This research has been financially supported by Suam Foundation. The authors are members of ‘Brain Korea 21’ Research Group of Yonsei University.

All Science Journal Classification (ASJC) codes

Statistics and Probability
Modelling and Simulation

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10.1080/03610910903447833

Cite this

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The effect of pseudo-exogenous instrumental variables on hausman test

Abstract

Bibliographical note

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