XTOVERID: Stata module to calculate tests of overidentifying restrictions after xtreg, xtivreg, xtivreg2, xthtaylor

Abstract

xtoverid computes versions of a test of overidentifying restrictions (orthogonality conditions) for a panel data estimation. For an instrumental variables estimation, this is a test of the null hypothesis that the excluded instruments are valid instruments, i.e., uncorrelated with the error term and correctly excluded from the estimated equation. The test statistic is distributed as chi-squared with degrees of freedom = L-K, where L is the number of excluded instruments and K is the number of regressors, and a rejection casts doubt on the validity of the instruments. xtoverid will report tests of overidentifying restrictions after IV estimation using fixed effects, first differences, random effects, and the Hausman-Taylor estimator. A test of fixed vs. random effects is also a test of overidentifying restrictions, and xtoverid will report this test after a standard panel data estimation with xtreg, re. This routine is now included in the overid package.