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https://hdl.handle.net/2440/96984
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Type: | Journal article |
Title: | On bootstrap validity for specification tests with weak instruments |
Author: | Doko Tchatoka, F. |
Citation: | Econometrics Journal, 2015; 18(1):137-146 |
Publisher: | Wiley |
Issue Date: | 2015 |
ISSN: | 1368-4221 1368-423X |
Statement of Responsibility: | Firmin Doka Tchatoka |
Abstract: | We study the asymptotic validity of the bootstrap for Durbin–Wu–Hausman tests of exogeneity, with or without identification. We provide an analysis of the limiting distributions of the proposed bootstrap statistics under both the null hypothesis of exogeneity (size) and the alternative hypothesis of endogeneity (power).We show that when identification is strong, the bootstrap provides a high-order approximation of the null limiting distributions of the statistics and is consistent under the alternative hypothesis if the endogeneity parameter is fixed. However, the bootstrap only provides a first-order approximation when instruments are weak. Moreover, we provide the necessary and sufficient condition under which the proposed bootstrap tests exhibit power under (fixed) endogeneity and weak instruments. The latter condition may still hold over a wide range of cases as long as at least one instrument is relevant. Nevertheless, all bootstrap tests have low power when all instruments are irrelevant, a case of little interest in empirical work. We present a Monte Carlo experiment that confirms our theoretical findings. |
Keywords: | Bootstrap validity; Durbin–Wu–Hausman tests; Edgeworth expansion; exogeneity testing; weak instruments |
Rights: | © 2014 Royal Economic Society. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA |
DOI: | 10.1111/ectj.12042 |
Published version: | http://dx.doi.org/10.1111/ectj.12042 |
Appears in Collections: | Aurora harvest 3 Economics publications |
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