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Averaged Instrumental Variables Estimators

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Abstract

We develop averaged instrumental variables estimators as a way to deal with many weak instruments. We propose a weighted average of the preliminary k-class estimators, where each estimator is obtained using different subsets of the available instrumental variables. The averaged estimators are shown to be consistent and to satisfy asymptotic normality. Furthermore, its approximate mean squared error reveals that using a small number of instruments for each preliminary k-class estimator reduces the finite sample bias, while averaging prevents the variance from inflating. Monte Carlo simulations find that the averaged estimators compare favorably with alternative instrumental-variable-selection approaches when the strength levels of individual IV are similar with each other.

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  • Yoonseok Lee & Yu Zhou, 2015. "Averaged Instrumental Variables Estimators," Center for Policy Research Working Papers 180, Center for Policy Research, Maxwell School, Syracuse University.
    • Handle: RePEc:max:cprwps:180
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    File URL: https://surface.syr.edu/cpr/212/
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    Cited by:

    1. Byunghoon Kang, 2018. "Higher Order Approximation of IV Estimators with Invalid Instruments," Working Papers 257105320, Lancaster University Management School, Economics Department.

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    More about this item

    Keywords

    Averaged estimator; many weak instruments; class estimator;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation

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