Increasing the power of specification tests

Tiemen Woutersen, Jerry A. Hausman

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

This paper shows how to increase the power of Hausman's (1978) specification test as well as the difference test in a large class of models. The idea is to impose the restrictions of the null and the alternative hypotheses when estimating the covariance matrix. If the null hypothesis is true then the proposed test has the same distribution as the existing ones in large samples. If the hypothesis is false then the proposed test statistic is larger with probability approaching one as the sample size increases in several important applications, including testing for endogeneity in the linear model.

Original languageEnglish (US)
Pages (from-to)166-175
Number of pages10
JournalJournal of Econometrics
Volume211
Issue number1
DOIs
StatePublished - Jul 2019

Keywords

  • Hausman test
  • Power of tests
  • Specification test

ASJC Scopus subject areas

  • Economics and Econometrics

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