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Not so. That is the purpose of the Durbin-Wu-Hausman test contrasting
OLS and IV estimates of the same equation. The null of that test is
that the moment condition is satisfied; a rejection indicates that OLS
will not be consistent and IV should be used. See Baum-Schaffer-
Stillman, Stata Journal 7:4, 2007, available in preprint form from my
website below.
Kit Baum | Boston College Economics & DIW Berlin | http://ideas.repec.org/e/pba1.html
An Introduction to Stata Programming
| http://www.stata-press.com/books/isp.html
An Introduction to Modern Econometrics Using Stata | http://www.stata-press.com/books/imeus.html
On Apr 16, 2009, at 02:33 , Michael wrote:
To your concern about "economic persuasion": one would use
instrumental variables if OLS is expected to yield biased results --
that is, if E[X'u] ~= 0. Of course, this moment condition is not
testable: you must use economic theory and/or intuition
("persuasion") to argue for the need for an IV estimator in the first
place.
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