Testing the Exclusion Restriction in IV Models Using Non-Gaussianity: A LiNGAM-Based Approach
Abstract
Instrumental variable (IV) methods rely critically on the exclusion restriction, which is untestable in exactly-identified models under standard assumptions. We propose a framework combining IV analysis with the LiNGAM method to test this restriction by exploiting non-Gaussianity in the data. Under non-Gaussian structural errors, the exclusion violation parameter is point-identified without additional instruments. Five complementary tests (bootstrap percentile, asymptotic normal, permutation, likelihood ratio, and independence-based) are introduced to assess the restriction under varying data conditions. Monte Carlo simulations and an empirical application to the Card (1995) dataset demonstrate controlled Type I error rates and reasonable power against economically relevant violations.
Cite
@article{arxiv.2603.13505,
title = {Testing the Exclusion Restriction in IV Models Using Non-Gaussianity: A LiNGAM-Based Approach},
author = {Fernando Delbianco},
journal= {arXiv preprint arXiv:2603.13505},
year = {2026}
}