SWITCHING ORTHOGONALITY

A simultaneous equation system presumes that endogenous explanatory Va riables are correlated with equation-specific structural disturbances. Our paper proposes estimation methods and tests for switching orthogo nality of a subset of the endogenous variables over a sample subset wh en the switching point is presumed known. Dividing the full sample per iod into two sub-periods, the null hypothesis of switching orthogonali ty/endogeneity is that the subset of endogenous variables is correlate d with the disturbance in one of the two periods only, whereas the alt ernative hypothesis of endogeneity is that the subset of variables is correlated with the disturbance in both periods.