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The Local Power of the Tests of Overidentifying Restrictions

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  • Magdalinos, Michael A

Abstract

The local power function of the size-corrected likelihood ratio, linearized likelihood ratio, and Lagrange multiplier tests of overidentifying restrictions on a structural equation is the same to the order 1/T. Moreover, this local power function doe s not depend on the k-class estimator used in the calculation of the test statistic. When the author does not use size-corrected tests, a degrees of freedom corrected likelihood ratio test seems to have the best size and power properties. Finally, the implicit null hypothesis of these tests indicates that they can be interpreted as testing the validity of the structural specification of the equation against any other identified structural equation that encompasses the original e quation. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Magdalinos, Michael A, 1988. "The Local Power of the Tests of Overidentifying Restrictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 509-524, August.
  • Handle: RePEc:ier:iecrev:v:29:y:1988:i:3:p:509-24
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    Cited by:

    1. repec:ebl:ecbull:v:3:y:2008:i:76:p:1-9 is not listed on IDEAS
    2. Rembert De Blander, 2008. "Which null hypothesis do overidentification restrictions actually test?," Economics Bulletin, AccessEcon, vol. 3(76), pages 1-9.
    3. Magdalinos, Michael A. & Symeonides, Spyridon D., 1996. "A reinterpretation of the tests of overidentifying restrictions," Journal of Econometrics, Elsevier, vol. 73(2), pages 325-353, August.
    4. Frahan, Bruno Henry de & Nkunzimana, Tharcisse & De Blander, Rembert & Gaspart, Frederic & Sumner, Daniel A., 2008. "Farm Household Incomes And Reforming The Cap," 109th Seminar, November 20-21, 2008, Viterbo, Italy 44814, European Association of Agricultural Economists.

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