Testing the exogeneity of economic time series: An application of innovation accounting
An analysis proposes and presents a testable sufficient conditions for testing the exogeneity of economic time series using Sims' (1980a) innovation accounting within an unconstrained vector autoregressive (VAR) model. It is demonstrated that if each explanatory variable of a model is sequentially placed in the last position of the ordering of variables during orthogonalization, then strict exogeneity of the dependable variable with respect to each explanatory variable can be tested without any a priori restrictions. The test is not biased by conditional correlations of other variables included in the model. The empirical demonstration within the VAR framework is based on a set of variables obtained by solving a macroeconomic model.
Dewan, A. A. (1994). Testing the exogeneity of economic time series: An application of innovation accounting. Applied Economics, 26(8), 785. doi:10.1080/00036849400000093