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Rank Tests for Instrumental Variables Regression with Weak Instruments

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Abstract

This paper considers tests in an instrumental variables (IVs) regression model with IVs that may be weak. Tests that have near-optimal asymptotic power properties with Gaussian errors for weak and strong IVs have been determined in Andrews, Moreira, and Stock (2006a). In this paper, we seek tests that have near-optimal asymptotic power with Gaussian errors and improved power with non-Gaussian errors relative to existing tests. Tests with such properties are obtained by introducing rank tests that are analogous to the conditional likelihood ratio test of Moreira (2003). We also introduce a rank test that is analogous to the Lagrange multiplier test of Kleibergen (2002) and Moreira (2001).

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File URL: http://cowles.econ.yale.edu/P/cd/d15b/d1564.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1564.

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Length: 51 pages
Date of creation: Mar 2006
Date of revision:
Publication status: Published in Econometric Theory (2007), 23(6): 1033-1082
Handle: RePEc:cwl:cwldpp:1564

Note: CFP 1250.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

Related research

Keywords: Asymptotically similar tests; Conditional likelihood ratio test; Instrumental variables regression; Lagrange multiplier test; Power of test; Rank tests; Thick-tailed distribution; Weak instruments;

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Cited by:
  1. Donald W.K. Andrews & Vadim Marmer, 2005. "Exactly Distribution-free Inference in Instrumental Variables Regression with Possibly Weak Instruments," Cowles Foundation Discussion Papers 1501, Cowles Foundation for Research in Economics, Yale University.
  2. Leandro M. Magnusson, 2008. "Inference in Limited Dependent Variable Models Robust to Weak Identification," Working Papers 0801, Tulane University, Department of Economics, revised Apr 2009.
  3. Patrik Guggenberger, . "Applications of Subsampling, Hybrid, and Size-Correction Methods (joint with D.W.K. Andrews), 2005, this version May 2007," UCLA Economics Online Papers 414, UCLA Department of Economics.
  4. Donald W.K. Andrews & Patrik Guggenberger, 2007. "Applications of Subsampling, Hybrid, and Size-Correction Methods," Cowles Foundation Discussion Papers 1608, Cowles Foundation for Research in Economics, Yale University.
  5. Mathias D. Cattaneo & Richard K. Crump & Michael Jansson, 2007. "Optimal Inference for Instrumental Variables Regression with non-Gaussian Errors," CREATES Research Papers 2007-11, School of Economics and Management, University of Aarhus.

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