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Unobserved Heterogeneity or Measurement Errors? Testing for Correlated Effects with Measurement Errors

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  • Eleonora Patacchini

Abstract

This paper addresses the problem of endogenous regressors due to the presence of unobserved heterogeneity, when this is correlated with the regressors, and caused by regressors’ measurement errors. A simple two‐stage testing procedure is proposed for the identification of the underlying cause of correlation between regressors and the error term. The statistical performance of the resulting sequential test is assessed using simulated data.

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  • Eleonora Patacchini, 2007. "Unobserved Heterogeneity or Measurement Errors? Testing for Correlated Effects with Measurement Errors ," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(6), pages 867-880, December.
    • Handle: RePEc:bla:obuest:v:69:y:2007:i:6:p:867-880
    DOI: 10.1111/j.1468-0084.2007.00485.x
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    References listed on IDEAS

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    1. Eric French, 2004. "The Labor Supply Response to (Mismeasured but) Predictable Wage Changes," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 602-613, May.
    2. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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