An alternative approach to the Hausman test is to include the residual from the reduced form equation into the primary equation and perform a t-test on its significance. This avoids any problems with the differences in the variance covariance matrices being non-positive definite that one can encounter in the original formulation of the test.
Bill Even, Professor
Department of Economics
Miami University
Oxford, OH 45056
Phone: 513-529-2865
Fax: 513-529-6992
home page: www.sba.muohio.edu/evenwe
e-mail: [email protected]
>>> [email protected] 11/06/02 10:29AM >>>
Hi,
I'd like to know if anyone has any suggestions on how to proceed when you
cannot perform the Hausman specification test because your data does not
meet the asymptotic assumptions of the test. The augmented regression
test is also based on the same assumptions of the Hausman and so is of
no help in this regard. I am using the Hausman test as a pre-test for
two-way causation but cannot perform it in some instances. Is any one
familiar with any alternatives to theses tests for @SLS? If not, is the
best approach to report results of both the OLS models and the 2SLS models?
Thanks.
DB
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