Question: The Hausman test discussed in the text can also be conducted in the following way. Consider Eq. (19.4.7): Q t = 0 +

The Hausman test discussed in the text can also be conducted in the following way. Consider Eq. (19.4.7):

Q_t = β₀ + β₁P_t + β₁v_t + u_2t

a. Since P_t and v_t have the same coefficients, how would you test that in a given application that is indeed the case? What are the implications of this?

b. Since P_t is uncorrelated with u_2t by design (why?), one way to find out if P_t is exogenous is to see if v_t is correlated with u_2t . How would you go about testing this? Which test do you use?

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