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Semiparametric Weak-Instrument Regressions with an Application to the Risk-Return Tradeoff

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Author Info
Benoit Perron (Université de Montréal, CIREQ and CIRANO)

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Abstract

We extend the local-to-zero analysis of models with weak instruments to models with estimated instruments and regressors and with higher-order dependence between instruments and disturbances. This framework is applicable to linear models with expectation variables that are estimated nonparametrically, such as the risk-return tradeoff in finance and the effect of inflation uncertainty on real economic activity. Our simulation evidence suggests that Lagrange multiplier confidence intervals have better coverage in these models. We apply these methods to excess returns on the S&P 500 index, yen-dollar spot returns, and excess holding yields between 6-month and 3-month Treasury bills. Copyright (c) 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 85 (2003)
Issue (Month): 2 (04)
Pages: 424-443
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Handle: RePEc:tpr:restat:v:85:y:2003:i:2:p:424-443

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  5. James H. Stock & Jonathan Wright, 2000. "GMM with Weak Identification," Econometrica, Econometric Society, vol. 68(5), pages 1055-1096, September.
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  7. Nelson, Charles R & Startz, Richard, 1990. "The Distribution of the Instrumental Variables Estimator and Its t-Ratio When the Instrument Is a Poor One," Journal of Business, University of Chicago Press, vol. 63(1), pages S125-40, January. [Downloadable!] (restricted)
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  8. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
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  9. Andrews, Donald W K, 1994. "Asymptotics for Semiparametric Econometric Models via Stochastic Equicontinuity," Econometrica, Econometric Society, vol. 62(1), pages 43-72, January. [Downloadable!] (restricted)
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  13. Dufour, J.M., 1995. "Some Impossibility Theorems in Econometrics with Applications to Instrumental Variables, Dynamic Models and Cointegration," Cahiers de recherche 9539, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  14. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February. [Downloadable!] (restricted)
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  19. Hall, Alastair R & Rudebusch, Glenn D & Wilcox, David W, 1996. "Judging Instrument Relevance in Instrumental Variables Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 283-98, May.
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  21. repec:cup:etheor:v:11:y:1995:i:3:p:560-96 is not listed on IDEAS
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