A Specification Test for Instrumental Variables Regression with Many Instruments

29 Pages Posted: 4 Dec 2009

See all articles by Yoonseok Lee

Yoonseok Lee

Syracuse University - Center for Policy Research; Syracuse University - Department of Economics

Ryo Okui

Seoul National University

Date Written: December 1, 2009

Abstract

This paper considers specification testing for instrumental variables estimation in the presence of many instruments. The test proposed is a modified version of the Sargan (1958, Econometrica 26(3): 393-415) test of overidentifying restrictions. The test statistic asymptotically follows the standard normal distribution under the null hypothesis of correct specification when the number of instruments increases with the sample size. We find that the new test statistic is numerically equivalent up to a sign to the test statistic proposed by Hahn and Hausman (2002, Econometrica 70(1): 163-189). We also assess the size and power properties of the test.

Keywords: Instrumental variables estimation, Many instruments, Overidentifying restrictions test, Specification test

JEL Classification: C12, C21

Suggested Citation

Lee, Yoonseok and Okui, Ryo, A Specification Test for Instrumental Variables Regression with Many Instruments (December 1, 2009). Cowles Foundation Discussion Paper No. 1741, Available at SSRN: https://ssrn.com/abstract=1516333 or http://dx.doi.org/10.2139/ssrn.1516333

Yoonseok Lee (Contact Author)

Syracuse University - Center for Policy Research ( email )

Syracuse, NY 13244
United States

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States

Ryo Okui

Seoul National University ( email )

Seoul
Korea, Republic of (South Korea)

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