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Nonparametric methods for inference in the presence of instrumental variables

Author

Listed:
  • Peter Hall

    (Institute for Fiscal Studies)

  • Joel L. Horowitz

    (Institute for Fiscal Studies and Northwestern University)

Abstract

We suggest two nonparametric approaches, based on kernel methods and orthogonal series, respectively, to estimating regression functions in the presence of instrumental variables. For the first time in this class of problems we derive optimal convergence rates, and show that they are attained by particular estimators. In the presence of instrumental variables the relation that identifies the regression function also defines an ill-posed inverse problem, the "difficulty" of which depends on eigenvalues of a certain integral operator which is determined by the joint density of endogenous and instrumental variables. We delineate the role played by problem difficulty in determining both the optimal convergence rate and the appropriate choice of smoothing parameter.

Suggested Citation

  • Peter Hall & Joel L. Horowitz, 2003. "Nonparametric methods for inference in the presence of instrumental variables," CeMMAP working papers CWP02/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:02/03
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    File URL: http://cemmap.ifs.org.uk/wps/cwp0302.pdf
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    Cited by:

    1. Woocheol Kim, 2004. "Identification And Estimation Of Nonparametric Structural," Econometric Society 2004 Far Eastern Meetings 733, Econometric Society.
    2. Linton, Oliver & Mammen, Enno, 2003. "Estimating semiparametric ARCH (8) models by kernel smoothing methods," LSE Research Online Documents on Economics 2187, London School of Economics and Political Science, LSE Library.
    3. Linton, Oliver & Mammen, Enno, 2004. "Estimating semiparametric ARCH (∞) models by kernel smoothing methods," LSE Research Online Documents on Economics 24762, London School of Economics and Political Science, LSE Library.
    4. Richard Blundell & Joel L. Horowitz, 2007. "A Non-Parametric Test of Exogeneity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1035-1058.
    5. Richard Blundell & Xiaohong Chen & Dennis Kristensen, 2003. "Nonparametric IV estimation of shape-invariant Engel curves," CeMMAP working papers CWP15/03, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    6. O. Linton & E. Mammen, 2005. "Estimating Semiparametric ARCH(∞) Models by Kernel Smoothing Methods," Econometrica, Econometric Society, vol. 73(3), pages 771-836, May.
    7. Severini, Thomas A. & Tripathi, Gautam, 2006. "Some Identification Issues In Nonparametric Linear Models With Endogenous Regressors," Econometric Theory, Cambridge University Press, vol. 22(2), pages 258-278, April.
    8. Qi Li & Jeffrey Scott Racine, 2006. "Nonparametric Econometrics: Theory and Practice," Economics Books, Princeton University Press, edition 1, volume 1, number 8355.
    9. Chernozhukov, Victor & Imbens, Guido W. & Newey, Whitney K., 2007. "Instrumental variable estimation of nonseparable models," Journal of Econometrics, Elsevier, vol. 139(1), pages 4-14, July.
    10. Frédérique Fève & Jean-Pierre Florens, 2010. "The practice of non-parametric estimation by solving inverse problems: the example of transformation models," Econometrics Journal, Royal Economic Society, vol. 13(3), pages 1-27, October.
    11. Joel L. Horowitz, 2004. "Testing a parametric model against a nonparametric alternative with identification through instrumental variables," CeMMAP working papers 14/04, Institute for Fiscal Studies.
    12. Joel L. Horowitz, 2004. "Testing a parametric model against a nonparametric alternative with identification through instrumental variables," CeMMAP working papers CWP14/04, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.

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