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Diagnostics for IV Regressions

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Abstract

The use of residuals from the structural equations in a simultaneous-equations model can lead to misleading measures of association and to invalid diagnostic statistics for heteroscedasticity and functional form misspecifications. The issue of appropriate measures of goodness-of-fit for IV regression is addressed in Pesaran and Smith (1994). This paper considers the problem of appropriate construction of diagnostics for IV regressions, and proposes simple tests for functional form misspecifications and heteroscedasticity.

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  • Pesaran, M. H. & Taylor, L.W., 1997. "Diagnostics for IV Regressions," Cambridge Working Papers in Economics 9709, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:9709
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    1. Pesaran, M Hashem & Smith, Richard J, 1994. "A Generalized R[superscript]2 Criterion for Regression Models Estimated by the Instrumental Variables Method," Econometrica, Econometric Society, vol. 62(3), pages 705-710, May.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    3. Gerrard, W J & Godfrey, L G, 1998. "Diagnostic Checks for Single-Equation Error-Correction and Autoregressive Distributed Lag Models," The Manchester School of Economic & Social Studies, University of Manchester, vol. 66(2), pages 222-237, March.
    4. Larry Taylor, 1997. "An R2criterion based on optimal predictors," Econometric Reviews, Taylor & Francis Journals, vol. 16(1), pages 109-118.
    5. Lee, Tae-Hwy & White, Halbert & Granger, Clive W. J., 1993. "Testing for neglected nonlinearity in time series models : A comparison of neural network methods and alternative tests," Journal of Econometrics, Elsevier, vol. 56(3), pages 269-290, April.
    6. Adrian R Pagan & Anthony D Hall, 1983. "Diagnostic tests as residual analysis," Published Paper Series 1983-1, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    7. Pesaran, M. Hashem & Smith, Richard J., 1990. "A unified approach to estimation and orthogonality tests in linear single-equation econometric models," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 41-66.
    8. Pagan, Adrian & Vella, Frank, 1989. "Diagnostic Tests for Models Based on Individual Data: A Survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages 29-59, Supplemen.
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