IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The Impact Of A Hausman Pretest On The Asymptotic Size Of A Hypothesis Test

  • Guggenberger, Patrik
Registered author(s):

    This paper investigates the asymptotic size properties of a two-stage test in the linear instrumental variables model when in the first stage a Hausman (1978) specification test is used as a pretest of exogeneity of a regressor. In the second stage, a simple hypothesis about a component of the structural parameter vector is tested, using a t -statistic that is based on either the ordinary least squares (OLS) or the two-stage least squares estimator (2SLS), depending on the outcome of the Hausman pretest. The asymptotic size of the two-stage test is derived in a model where weak instruments are ruled out by imposing a positive lower bound on the strength of the instruments. The asymptotic size equals 1 for empirically relevant choices of the parameter space. The size distortion is caused by a discontinuity of the asymptotic distribution of the test statistic in the correlation parameter between the structural and reduced form error terms. The Hausman pretest does not have sufficient power against correlations that are local to zero while the OLS-based t -statistic takes on large values for such nonzero correlations. Instead of using the two-stage procedure, the recommendation then is to use a t -statistic based on the 2SLS estimator or, if weak instruments are a concern, the conditional likelihood ratio test by Moreira (2003).

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://journals.cambridge.org/abstract_S0266466609100026
    File Function: link to article abstract page
    Download Restriction: no

    Article provided by Cambridge University Press in its journal Econometric Theory.

    Volume (Year): 26 (2010)
    Issue (Month): 02 (April)
    Pages: 369-382

    as
    in new window

    Handle: RePEc:cup:etheor:v:26:y:2010:i:02:p:369-382_10
    Contact details of provider: Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK
    Web page: http://journals.cambridge.org/jid_ECT
    Email:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:cup:etheor:v:26:y:2010:i:02:p:369-382_10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.