Exact properties of the conditional likelihood ratio test in an IV regression model

Hillier, Grant (2007) Exact properties of the conditional likelihood ratio test in an IV regression model. London, UK, Cemmap, 48pp. (Cemmap Working Papers CWP23/06, (doi:10.1920/wp.cem.2006.2306) ).


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For a simplified structural equation/IV regression model with one right-side endogenous variable, we obtain the exact conditional distribution function for Moreira's (2003) conditional likelihood ratio (CLR) test. This is then used to obtain the critical value function needed to implement the CLR test, and reasonably comprehensive graphical versions of the function are provided for practical use. The analogous functions are also obtained for the case of testing more than one right-side endogenous coefficient, but only for an approximation to the true likelihood ratio test. We then go on to provide an exact analysis of the power functions of the CLR test, the Anderson-Rubin test, and the LM test suggested by Kleibergen (2002). The CLR test is shown to clearly conditionally dominate the other two tests for virtually all parameter configurations, but none of these test is either inadmissable or uniformly superior to the other two.

Item Type: Monograph (Working Paper)
Digital Object Identifier (DOI): doi:10.1920/wp.cem.2006.2306
ISSNs: 1753-9196 (print)
Related URLs:
Subjects: H Social Sciences > H Social Sciences (General)
Q Science > QA Mathematics
H Social Sciences > HA Statistics
Divisions : University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 42735
Accepted Date and Publication Date:
1 May 2007Published
1 October 2006Submitted
Date Deposited: 25 Jan 2007
Last Modified: 31 Mar 2016 12:15
URI: http://eprints.soton.ac.uk/id/eprint/42735

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