Testing for superexogeneity of wage equations
The superexogeneity of wage equations is tested in four major European countries. This is an important issue because while only weak exogeneity is needed for estimation purposes and for testing, and strong exogeneity for forecasting, superexogeneity is required for policy analysis. The procedure suggested by Engle and Hendry (1993) is adopted to carry out the empirical analysis. In all cases the conditional model is not affected by the first and second moments of the residuals from the marginal models. This invariance result implies that the estimated linear regression models are not subject to the Lucas critique over the period examined. Differences in wage determination between the various countries can be plausibly interpreted as resulting from the bargaining environment.
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