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New exogeneity tests and causal paths. (English) Zbl 1439.62248

Vinod, Hrishikesh D. (ed.) et al., Conceptual econometrics using R. Amsterdam: Elsevier/North Holland. Handb. Stat. 41, 33-64 (2019).
Summary: We modify Suppes’ probabilistic causality theory by replacing inequalities among probabilities of events by unequal residuals of flipped kernel regression conditional expectation functions, \(E f(X_j|X_i,X_k)\) and \(E f(X_i|X_j, X_k)\), allowing asymmetry. Using three criteria we aggregate evidence from four orders of stochastic dominance and new asymmetric partial correlation coefficients to develop a unanimity index: \(UI\). The index yields a decision rule for \(X_i\) to be self-driven or exogenous, based on confirming the causal paths. Thus \(UI\) can replace Hausman-Wu’s indirect exogeneity test which diagnoses endogeneity (a disease) by showing that instrumental variables (IV) estimator remedy “works”. A simulation supports our decision rules. An illustration identifies exogenous variables which can help predict US economic recession.
For the entire collection see [Zbl 1430.62013].

MSC:

62P20 Applications of statistics to economics
62F40 Bootstrap, jackknife and other resampling methods
05C90 Applications of graph theory
60E15 Inequalities; stochastic orderings
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