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A Cautionary Note on Tests for Overidentifying Restrictions

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Listed:
  • Paulo M.D.C. Parente

    (Department of Economics, University of Exeter)

  • Joao M.C. Santos Silva

    (University of Essex and CEMAPRE)

Abstract

Tests of overidentifying restrictions are widely used in practice. However, there is often confusion about the nature of their null hypothesis and about the interpretation of their outcome. In this note we argue that these tests give little information on whether the instruments are correlated with the errors of the underlaying economic model and on whether they identify parameters of interest.

Suggested Citation

  • Paulo M.D.C. Parente & Joao M.C. Santos Silva, 2011. "A Cautionary Note on Tests for Overidentifying Restrictions," Discussion Papers 1111, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:1111
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    GMM; Hansen's J-test; Instrumental variables; Sargan test.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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