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A Simple and Robust Estimator for Linear Regression Models with Strictly Exogenous Instruments

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  • Juan Carlos Escanciano

    (Indiana University)

Abstract

This paper investigates estimation of linear regression models with strictly exogenous instruments under minimal identifying assumptions. The paper introduces auniformly (in the data generating process) consistent estimator under nearly minimalidentifying assumptions. The proposed estimator, called the Integrated Instrumental Variables (IIV) estimator, is a simple weighted least squares estimator and does not require the choice of a bandwidth or tuning parameter, or the selection of a finite set of instruments. Thus, the estimator is extremely simple to implement. Monte Carlo evidence supports the theoretical claims and suggests that the IIV estimator is a robust complement to optimal IV in finite samples. In an application with quarterly UK data, IIV estimates a positive and significant elasticity of intertemporal substitution and an equally sensible estimate for its reciprocal, in sharp contrast to IV methods that fail to identify these parameters.

Suggested Citation

  • Juan Carlos Escanciano, 2016. "A Simple and Robust Estimator for Linear Regression Models with Strictly Exogenous Instruments," CAEPR Working Papers 2017-001, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2017001
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    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2017-001.pdf
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    Cited by:

    1. Antoine, Bertille & Lavergne, Pascal, 2023. "Identification-robust nonparametric inference in a linear IV model," Journal of Econometrics, Elsevier, vol. 235(1), pages 1-24.
    2. Pedro H. C. Sant'Anna & Xiaojun Song & Qi Xu, 2022. "Covariate distribution balance via propensity scores," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(6), pages 1093-1120, September.
    3. Xuexin WANG, 2021. "Instrumental variable estimation via a continuum of instruments with an application to estimating the elasticity of intertemporal substitution in consumption," Working Papers 2021-11-06, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    4. Jinho Choi & Juan Carlos Escanciano & Junjie Guo, 2022. "Generalized band spectrum estimation with an application to the New Keynesian Phillips curve," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(5), pages 1055-1078, August.
    5. Wayne Yuan Gao & Rui Wang, 2023. "IV Regressions without Exclusion Restrictions," Papers 2304.00626, arXiv.org, revised Jul 2023.

    More about this item

    Keywords

    Uniform identification; Instrumental variables; Weak instruments; Uniform inference; Intertemporal elasticity of substitution;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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