The validity of instruments revisited
AbstractThis paper shows how valid inferences can be made when an instrumental variable does not perfectly satisfy the orthogonality condition. When there is a mild violation of the orthogonality condition, the Anderson and Rubin (1949) test is oversized. In order to correct this problem, the fractionally resampled Anderson–Rubin test is derived by modifying Wu’s (1990) resampling technique. We select half of the sample when resampling and obtain valid but conservative critical values. Simulations show that our technique performs well even with moderate to large violation of exogeneity when there is a finite sample correction for the block size choice.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Econometrics.
Volume (Year): 166 (2012)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/jeconom
Berry–Esseen bound; Finite sample of random variables; Near-exogeneity;
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- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
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- Caner, Mehmet & Morrill, Melinda, 2009.
"A New Paradigm: A Joint Test of Structural and Correlation Parameters in Instrumental Variables Regression When Perfect Exogeneity is Violated,"
16790, University Library of Munich, Germany.
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