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A Cautionary Note on Tests for Overidentifying Restrictions

  • Paulo M.D.C. Parente

    (Department of Economics, University of Exeter)

  • Joao M.C. Santos Silva

    (University of Essex and CEMAPRE)

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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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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  1. K. Newey, Whitney, 1985. "Generalized method of moments specification testing," Journal of Econometrics, Elsevier, vol. 29(3), pages 229-256, September.
  2. Angus Deaton, 2010. "Instruments, randomization, and learning about development," Working Papers 1224, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  3. Ichino, Andrea & Winter-Ebmer, Rudolf, 1999. "Lower and upper bounds of returns to schooling: An exercise in IV estimation with different instruments," European Economic Review, Elsevier, vol. 43(4-6), pages 889-901, April.
  4. Helena Holmlund & Mikael Lindahl & Erik Plug, 2011. "The Causal Effect of Parents' Schooling on Children's Schooling: A Comparison of Estimation Methods," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 615-51, September.
  5. Alastair R. Hall & Denis Pelletier, 2007. "Non-Nested Testing in Models Estimated via Generalized Method of Moments," Working Paper Series 011, North Carolina State University, Department of Economics, revised Mar 2007.
  6. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-75, March.
  7. Hall, Alastair R., 2004. "Generalized Method of Moments," OUP Catalogue, Oxford University Press, number 9780198775201, March.
  8. 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.
  9. Rembert De Blander, 2008. "Which null hypothesis do overidentification restrictions actually test?," Economics Bulletin, AccessEcon, vol. 3(76), pages 1-9.
  10. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, June.
  11. 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.
  12. repec:ebl:ecbull:v:3:y:2008:i:76:p:1-9 is not listed on IDEAS
  13. 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.
  14. 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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