2003 Reports

Tests for endogeneity and instrument suitability

Dhrymes, Phoebus J.

This paper deals with two alternatives to the so-called Hausman test for the exogeneity of instruments, in the context of a model where one or more explanatory variables are possibly correlated with the structural error. These two alternatives are at least as good or better than the Hausman test and are much simpler to carry out. A small Monte Carlo study illustrates this result.