Testing Exogeneity in the Bivariate Probit Model: A Monte Carlo Study
22 Pages Posted: 28 Feb 2006
Date Written: March 10, 2006
We conduct an extensive Monte Carlo experiment to examine the finite samples properties of maximum likelihood based inference in the bivariate probit model with endogenous dummy. We analyse the relative performance of alternative exogeneity tests, the impact of distributional misspecification and the role of exclusion restrictions to achieve parameter identification in practice. The results of our investigation allow us to draw some important guidelines for the applied econometric practice.
Keywords: Bivariate probit model, endogenous dummy, exogeneity testing
JEL Classification: C15, C35, C52
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