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A nonparametric test of exogeneity

Authors: Richard Blundell and Joel L. Horowitz
Date: 06 October 2007
Type: Journal Article, Review of Economic Studies, Vol. 74, No. 4, pp. 1035-1058
DOI: 10.1111/j.1467-937X.2007.00458.x

Abstract

This paper presents a test for exogeneity of explanatory variables that minimizes the need for auxiliary assumptions that are not required by the definition of exogeneity. It concerns inference about a non-parametric function "g" that is identified by a conditional moment restriction involving instrumental variables (IV). A test of the hypothesis that "g" is the mean of a random variable "Y" conditional on a covariate "X" is developed that is not subject to the ill-posed inverse problem of non-parametric IV estimation. The test is consistent whenever "g" differs from "E"("Y"|"X") on a set of non-zero probability. The usefulness of this new exogeneity test is displayed through Monte Carlo experiments and an application to estimation of non-parametric consumer expansion paths. Copyright 2007 The Review of Economic Studies Limited.

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Richard Blundell and Joel L. Horowitz December 2004, A nonparametric test of exogeneity, cemmap Working Paper, CWP15/04

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