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The validity of instruments revisited

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Author Info

  • Berkowitz, Daniel
  • Caner, Mehmet
  • Fang, Ying

Abstract

This 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 Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 166 (2012)
Issue (Month): 2 ()
Pages: 255-266

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Handle: RePEc:eee:econom:v:166:y:2012:i:2:p:255-266

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Berry–Esseen bound; Finite sample of random variables; Near-exogeneity;

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Cited by:
  1. 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," MPRA Paper 16790, University Library of Munich, Germany.
  2. Mark L. Hoekstra & Dan Berkowitz, 2008. "Do Elite Private High Schools Improve College Placement? Evidence from Admission Data," Working Papers 364, University of Pittsburgh, Department of Economics, revised Aug 2008.
  3. Berkowitz, Daniel & Hoekstra, Mark, 2011. "Does high school quality matter? Evidence from admissions data," Economics of Education Review, Elsevier, vol. 30(2), pages 280-288, April.
  4. Xu Cheng & Zhipeng Liao, 2012. "Select the Valid and Relevant Moments: A One-Step Procedure for GMM with Many Moments," PIER Working Paper Archive 12-045, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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