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

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  • Benoit Perron

    (Université de Montréal, CIREQ and CIRANO)

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. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

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

Volume (Year): 85 (2003)
Issue (Month): 2 (May)
Pages: 424-443

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Handle: RePEc:tpr:restat:v:85:y:2003:i:2:p:424-443

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Cited by:
  1. DUFOUR, Jean-Marie, 2003. "Identification, Weak Instruments and Statistical Inference in Econometrics," Cahiers de recherche 10-2003, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Dufour, Jean-Marie & Taamouti, Mohamed, 2007. "Further results on projection-based inference in IV regressions with weak, collinear or missing instruments," Journal of Econometrics, Elsevier, vol. 139(1), pages 133-153, July.

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