Scandinavian Working Papers in Economics
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IFAU - Institute for Evaluation of Labour Market and Education Policy Working Paper Series
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2001:9:
Testing exogeneity under distributional misspecification

Xavier de Luna and Per Johansson ()

Abstract: We propose a general test for exogeneity that is robust against distributional misspecification. The test can also be used to identify other types of misspecifications, such as the presence of a random coefficient. The idea is to sort the data with respect to a variable (a sorting score) and then split the sample into two parts. Using a Chow test, it can then be tested whether estimated parameters in the two sub-samples are different. We give conditions under which it is possible to test for exogeneity by using the (supposedly) endogenous variable as a sorting score. The resulting test does not need instrumental variables. Evidence from a Monte Carlo study and an empirical application suggets that the test can be useful for practitioners.

Keywords: Absenteeism at work; endogeneity; linear exponential family; random effect; random coefficient; selectivity; (follow links to similar papers)

JEL-Codes: C12; C14; C15; C21; C31; C52; (follow links to similar papers)

33 pages, July 18, 2001

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