On Bootstrap Validity for Specification Tests with Weak Instruments

Firmin Doko Tchatoka

No 2014-06, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: We investigate the asymptotic validity of the bootstrap for Durbin-Wu-Hausman (DWH) tests of exogeneity in linear IV regressions, with or without identification. Our analysis of the properties (size and power) of the proposed bootstrap tests provides some new insights and extensions of earlier studies. More precisely, we show that when identification is strong, the bootstrap: (1) provides an asymptotic refinement of the size of the DWH tests under exogeneity, and (2) is consistent under the alternative hypothesis if the endogeneity parameter is fixed. However, the bootstrap only provides a first-order approximation of the asymptotic distributions of these statistics when instruments are weak. Moreover, we characterize the necessary and sufficient condition under which the proposed bootstrap DWH tests exhibit power under fixed endogeneity and weak instruments. The latter condition may still hold over a wide range of cases, provided that at least one instrument is not irrelevant. But 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: Exogeneity testing; Durbin-Wu-Hausman tests; weak instruments; bootstrap validity; asymptotic refinement. (search for similar items in EconPapers)
JEL-codes: C12 C15 C3 C52 (search for similar items in EconPapers)
Pages: 29 pages.
Date: 2014-06
New Economics Papers: this item is included in nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://media.adelaide.edu.au/economics/papers/doc/wp2014-06.pdf (application/pdf)

Related works:
Journal Article: On bootstrap validity for specification tests with weak instruments (2015)
Working Paper: On bootstrap validity for specification tests with weak instruments (2013)
Working Paper: On bootstrap validity for specification tests with weak instruments (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:adl:wpaper:2014-06

Access Statistics for this paper

More papers in School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy Contact information at EDIRC.
Bibliographic data for series maintained by Qazi Haque ().