Thanks Mark,
I have been googeling this subject a while and found mixed approaches to
finding the best instruments.
Some seem to experiment with instruments until the Smith-Blundell-test
is rejected (i.e. regressor is exogenous).
Then they conclude that the instruments are valid. This is maybe an
inappropriate use of the test?
It seems the current literature recommends close inspection of the
first-step regression to identify
valid instruments (testing exlusion restrictions, Shea's partial
r-squared etc.)
Sincerely,
Ivar Pettersen
Phd-student
Norwegian University of Science and Technology
-----Original Message-----
From: [email protected]
[mailto:[email protected]] On Behalf Of Schaffer,
Mark E
Sent: Tuesday, April 18, 2006 6:16 PM
To: [email protected]
Subject: st: RE: Interpretation of Smith-Blundell exog. test
Ivar,
> -----Original Message-----
> From: [email protected]
> [mailto:[email protected]] On Behalf Of Ivar
> Pettersen
> Sent: 18 April 2006 02:53
> To: [email protected]
> Subject: st: Interpretation of Smith-Blundell exog. test
>
> Hello.
>
> I've got a Q related to the interpretation of the Smith-Blundell test.
> It is provided both by *ivprobit* and *probexog*.
> The help file for probexog states "A rejection indicates that the
> standard probit (tobit) estimator should not be employed."
> So if rejected one should use an IV-technique.
>
> When the test is run it is necessary to provide some instruments. The
> question is: would not a rejection also mean that the instruments you
> have provided are not good enough in an IV-estimation?
In fact, for the test to be valid, you have to assume that the
instruments *are* good enough for an IV estimation. The test is a test
of the exogeneity of the specified regressor. If you reject, it means
you need to treat it as endogenous and therefore instrument; if you fail
to reject, it means you can consider treating it as exogenous.
Maybe you are thinking of a test of overidentifying restrictions.
That's a test of the exogeneity of the instruments; a rejection there
means the instruments are not valid.
HTH.
--Mark
> Sincerely
> Ivar Pettersen
>
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