Re: st: Question on Wooldridge's Procedure 18.1

[Austin Nichols <austinnichols@gmail.com>]

B.Gibbons <brent.gibbons@gmail.com>:
This question is not clear to me--the point is that weak IV
diagnostics work fine for the linear probability model but not
Procedure 18.1, as evidenced by a thought experiment (or simulation)
using white noise variables as excluded instruments as in my 2010
post. When you say "can't test the exclusion restriction" you are
apparently confusing several tests of quality of inference in
instrumental variables. I have no idea what you mean by "the
non-linearity in the probit may be correlated with..." (did you mean
some component of the error? a generalized residual?)

On Thu, Aug 2, 2012 at 7:43 PM, B.Gibbons <brent.gibbons@gmail.com> wrote:
> Hi Austin, I'm currently using the 18.1 method in a project and have seen
> your warnings about using tests of instrument strength through the 18.1
> method.
>
> My 1st question is whether those warnings are solely because of the
> potential that the non-linearity in the probit may be correlated with the
> binary endogenous variable - and falsely show good instrument strength.
>
> 2nd - what if there is both strong correlation between the non-linearity in
> the probit AND strong instruments in the model: is there reason to worry
> about this non-linearity as having a potential bias, especially since you
> can't test the exclusion restriction for that?
>
> Thanks for any comments, Brent
>
>
>
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