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Endogeneity Testing in a Supply and Demand Framework
Walter N. Thurman
The Review of Economics and Statistics
Vol. 68, No. 4 (Nov., 1986), pp. 638-646
Published by: The MIT Press
Stable URL: http://www.jstor.org/stable/1924523
Page Count: 9
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The powers of Wu-Hausman endogeneity tests are related to the normalization decision in estimating demand equations. Power is not invariant to the choice between quantity and price as the dependent variable. A theoretical result due to Nakamura and Nakamura (1983) is used to explore the dependence of power on parameters of the supply and demand system. The theoretical result is corroborated with a Monte Carlo experiment. The power results are used to analyze the U.S. demand for poultry meat wherein price, but not quantity, is found to be predetermined.
The Review of Economics and Statistics © 1986 The MIT Press