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A Cautionary Note on Tests for Overidentifying Restrictions

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  • Paulo M.D.C. Parente

    (Department of Economics, University of Exeter)

  • Joao M.C. Santos Silva

    (University of Essex and CEMAPRE)

Abstract

Tests of overidentifying restrictions are widely used in practice. However, there is often confusion about the nature of their null hypothesis and about the interpretation of their outcome. In this note we argue that these tests give little information on whether the instruments are correlated with the errors of the underlaying economic model and on whether they identify parameters of interest.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP1111.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 1111.

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Date of creation: 2011
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Handle: RePEc:exe:wpaper:1111

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Keywords: GMM; Hansen's J-test; Instrumental variables; Sargan test.;

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  1. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
  2. Holmlund, Helena & Lindahl, Mikael & Plug, Erik, 2008. "The Causal Effect of Parent's Schooling on Children's Schooling: A Comparison of Estimation Methods," IZA Discussion Papers 3630, Institute for the Study of Labor (IZA).
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  7. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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  9. Hall, Alastair R. & Inoue, Atsushi, 2003. "The large sample behaviour of the generalized method of moments estimator in misspecified models," Journal of Econometrics, Elsevier, vol. 114(2), pages 361-394, June.
  10. Rembert De Blander, 2008. "Which null hypothesis do overidentification restrictions actually test?," Economics Bulletin, AccessEcon, vol. 3(76), pages 1-9.
  11. repec:ebl:ecbull:v:3:y:2008:i:76:p:1-9 is not listed on IDEAS
  12. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
  13. Angrist, Joshua D & Graddy, Kathryn & Imbens, Guido W, 2000. "The Interpretation of Instrumental Variables Estimators in Simultaneous Equations Models with an Application to the Demand for Fish," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 499-527, July.
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Cited by:
  1. Ciani, Emanuele, 2012. "Informal adult care and caregivers' employment in Europe," Labour Economics, Elsevier, vol. 19(2), pages 155-164.

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