Exact properties of the conditional likelihood ratio test in an IV regression model
Exact properties of the conditional likelihood ratio test in an IV regression model
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.
Centre for Microdata Methods and Practice
Hillier, Grant
3423bd61-c35f-497e-87a3-6a5fca73a2a1
1 May 2007
Hillier, Grant
3423bd61-c35f-497e-87a3-6a5fca73a2a1
Hillier, Grant
(2007)
Exact properties of the conditional likelihood ratio test in an IV regression model
(Cemmap Working Papers CWP23/06)
London, UK.
Centre for Microdata Methods and Practice
48pp.
(doi:10.1920/wp.cem.2006.2306).
Record type:
Monograph
(Working Paper)
Abstract
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.
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Submitted date: 1 October 2006
Published date: 1 May 2007
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Local EPrints ID: 42735
URI: http://eprints.soton.ac.uk/id/eprint/42735
PURE UUID: 66723eaa-ac68-4493-ac6a-4c09d46ba5ce
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Date deposited: 25 Jan 2007
Last modified: 16 Mar 2024 02:42
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