A cautionary note on tests of overidentifying restrictions

In this note, we argue that tests of overidentifying restrictions give little information on the validity of the moment conditions implied by the underlying economic model, and therefore are mute about the possibility of identifying the parameters of interest.

► Tests of overidentifying restrictions are widely used in practice. ► However, there is often confusion about their interpretation. ► We argue that these tests do not check the validity of the instruments. ► Rather, they check whether all instruments identify the same set of parameters.