Testing exogeneity under distributional misspecification
We propose a general test for exogeneity that is robust against distributional misspecification. The test can also be used to identify other types of misspecifications, such as the presence of a random coefficient. The idea is to sort the data with respect to a variable (a sorting score) and then split the sample into two parts. Using a Chow test, it can then be tested whether estimated parameters in the two sub-samples are different. We give conditions under which it is possible to test for exogeneity by using the (supposedly) endogenous variable as a sorting score. The resulting test does not need instrumental variables. Evidence from a Monte Carlo study and an empirical application suggets that the test can be useful for practitioners.
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- Vella, Francis, 1993.
"A Simple Estimator for Simultaneous Models with Censored Endogenous Regressors,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 441-57, May.
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