Write a Short Essay About the Overidentifying Restrictions Test

question 22

Essay

Write a short essay about the Overidentifying Restrictions Test. What is meant exactly by "overidentification?" State the null hypothesis. Describe how to calculate the J-statistic and what its distribution is. Use an example of two instruments and one endogenous variable to explain under what situation the test will be likely to reject the null hypothesis. What does this example tell you about the exactly identified case? If your variables pass the test, is this sufficient for these variables to be good instruments?

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Definitions:

Horizontal Axis

The horizontal number line of a graph along which values of the x-variable are measured; also referred to as the x-axis.

Dependent Variable

The determined variable in a causal relationship.

Independent Variable

The variable in an experiment or study that is manipulated or changed to observe its effect on a dependent variable.

Slope

In the field of mathematics, the slope is determined by the steepness or angle of elevation of a line, calculated as the ratio between the vertical and horizontal differences of two points on the line.