Testing for Exogeneity in Nonlinear Threshold Models

Queen Mary, University of London Economics Working Paper No. 515

23 Pages Posted: 26 Jul 2004

Date Written: July 2004

Abstract

Most work in the area of nonlinear econometric modelling is based on a single equation and assumes exogeneity of the explanatory variables. Recently, work by Caner and Hansen (2003) and Psaradakis, Sola, and Spagnolo (2004) has considered the possibility of estimating nonlinear models by methods that take into account endogeneity but provided no tests for exogeneity. This paper examines the problem of testing for exogeneity in nonlinear threshold models. We suggest new Hausman-type tests and discuss the use of the bootstrap to improve the properties of asymptotic tests. The theoretical properties of the tests are discussed and an extensive Monte Carlo study is undertaken.

Keywords: Threshold models, endogeneity, bootstrap

JEL Classification: C12, C15, C22

Suggested Citation

Kapetanios, George, Testing for Exogeneity in Nonlinear Threshold Models (July 2004). Queen Mary, University of London Economics Working Paper No. 515, Available at SSRN: https://ssrn.com/abstract=568842 or http://dx.doi.org/10.2139/ssrn.568842

George Kapetanios (Contact Author)

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

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