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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.

Suggested Citation

  • Paulo M.D.C. Parente & Joao M.C. Santos Silva, 2011. "A Cautionary Note on Tests for Overidentifying Restrictions," Discussion Papers 1111, Exeter University, Department of Economics.
  • Handle: RePEc:exe:wpaper:1111
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    References listed on IDEAS

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    8. 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, pages 615-651.
    9. Hall, Alastair R. & Pelletier, Denis, 2011. "Nonnested Testing In Models Estimated Via Generalized Method Of Moments," Econometric Theory, Cambridge University Press, vol. 27(02), pages 443-456, April.
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    9. Berlingieri, Francesco & Zierahn, Ulrich, 2014. "Field of study, qualification mismatch, and wages: Does sorting matter?," ZEW Discussion Papers 14-076, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    10. Kiviet Jan F., 2017. "Discriminating between (in)valid External Instruments and (in)valid Exclusion Restrictions," Journal of Econometric Methods, De Gruyter, pages 1-9.
    11. Jasmin Katrin Gröschl, 2013. "Gravity Model Applications and Macroeconomic Perspectives," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 48, April.
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    17. Atsbeha, Daniel Muluwork & Nayga, Rodolfo M. & Rickertsen, Kyrre, 2015. "Can prolonged breastfeeding duration impair child growth? Evidence from rural Ethiopia," Food Policy, Elsevier, vol. 53(C), pages 46-53.
    18. Daire McCoy, John Curtis, 2017. "Exploring the spatial and temporal determinants of gas central heating adoption," GRI Working Papers 320, Grantham Research Institute on Climate Change and the Environment.
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    20. Cassar, Gavin & Ittner, Christopher D. & Cavalluzzo, Ken S., 2015. "Alternative information sources and information asymmetry reduction: Evidence from small business debt," Journal of Accounting and Economics, Elsevier, vol. 59(2), pages 242-263.

    More about this item

    Keywords

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

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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