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Graphical diagnostics of endogeneity

In: Modelling and Evaluating Treatment Effects in Econometrics

Author

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  • Xavier de Luna
  • Per Johansson

Abstract

We show that in sorting cross-sectional data, the endogeneity of a variable may be successfully detected by graphically examining the cumulative sum of the recursive residuals. Moreover, the sign of the bias implied by the endogeneity may be deducible through such graphs. In general, instrumental variables are needed to implement the graphical test. However, when a continuous or ordered (e.g. years of schooling) variable is suspected to be endogenous, a graphical test for misspecification due to endogeneity (e.g. self-selection) can be obtained without instrumental variables.

Suggested Citation

  • Xavier de Luna & Per Johansson, 2008. "Graphical diagnostics of endogeneity," Advances in Econometrics, in: Modelling and Evaluating Treatment Effects in Econometrics, pages 147-166, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aecozz:s0731-9053(07)00006-0
    DOI: 10.1016/S0731-9053(07)00006-0
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    Cited by:

    1. de Luna, Xavier & Johansson, Per, 2006. "Exogeneity in structural equation models," Journal of Econometrics, Elsevier, vol. 132(2), pages 527-543, June.
    2. Xoaquín Fernández Leiceaga & Santiago Lago Peñas & Patricio Sánchez Fernández, 2015. "¿Ha contribuido la población inmigrante a la convergencia interregional en España?," Revista de Estudios Regionales, Universidades Públicas de Andalucía, vol. 3, pages 59-82.
    3. José Caamaño-Alegre & Santiago Lago-Peñas & Francisco Reyes-Santias & Aurora Santiago-Boubeta, 2011. "Budget Transparency in Local Governments: An Empirical Analysis," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1102, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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