Efficient estimation with many weak instruments using regularization techniques
AbstractThe problem of weak instruments is due to a very small concentration parameter. To boost the concentration parameter, we propose to increase the number of instruments to a large number or even up to a continuum. However, in finite samples, the inclusion of an excessive number of moments may be harmful. To address this issue, we use regularization techniques as in Carrasco (2012) and Carrasco and Tchuente (2013). We show that normalized regularized 2SLS and LIML are consistent and asymptotically normally distributed. Moreover, their asymptotic variances reach the semiparametric efficiency bound unlike most competing estimators. Our simulations show that the leading regularized estimators (LF and T of LIML) work very well (is nearly median unbiased) even in the case of relatively weak instruments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRANO in its series CIRANO Working Papers with number 2013s-21.
Date of creation: 01 Jul 2013
Date of revision:
Contact details of provider:
Postal: 2020 rue University, 25e étage, Montréal, Quéc, H3A 2A5
Phone: (514) 985-4000
Fax: (514) 985-4039
Web page: http://www.cirano.qc.ca/
More information through EDIRC
Many weak instruments; LIML; 2SLS; regularization methods;
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carrasco, Marine, 2012. "A regularization approach to the many instruments problem," Journal of Econometrics, Elsevier, vol. 170(2), pages 383-398.
- A. Belloni & D. Chen & V. Chernozhukov & C. Hansen, 2012.
"Sparse Models and Methods for Optimal Instruments With an Application to Eminent Domain,"
Econometric Society, vol. 80(6), pages 2369-2429, November.
- A. Belloni & D. Chen & Victor Chernozhukov & Christian Hansen, 2010. "Sparse models and methods for optimal instruments with an application to eminent domain," CeMMAP working papers CWP31/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Jerry A. Hausman & Whitney K. Newey & Tiemen Woutersen & John C. Chao & Norman R. Swanson, 2012.
"Instrumental variable estimation with heteroskedasticity and many instruments,"
Econometric Society, vol. 3(2), pages 211-255, 07.
- Hausman & Newey & Woutersen & Chao & Swanson, 2009. "Instrumental Variable Estimation with Heteroskedasticity and Many Instruments," Economics Working Paper Archive 566, The Johns Hopkins University,Department of Economics.
- Jerry Hausman & Whitney Newey & Tiemen Woutersen & John Chao & Norman Swanson, 2007. "Instrumental variable estimation with heteroskedasticity and many instruments," CeMMAP working papers CWP22/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Norman R. Swanson & John C. Chao & Jerry A. Hausman & Whitney K. Newey & Tiemen Woutersen, 2011. "Instrumental Variable Estimation with Heteroskedasticity and Many Instruments," Departmental Working Papers 201111, Rutgers University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).
If references are entirely missing, you can add them using this form.