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Wild Bootstrap Tests for IV Regression

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Author Info

  • Russell Davidson

    ()
    (McGill University)

  • James G. MacKinnon

    ()
    (Queen's University)

Abstract

We propose a wild bootstrap procedure for linear regression models estimated by instrumental variables. Like other bootstrap procedures that we have proposed elsewhere, it uses efficient estimates of the reduced-form equation(s). Unlike them, it takes account of possible heteroskedasticity of unknown form. We apply this procedure to t tests, including heteroskedasticity-robust t tests, and to the Anderson-Rubin test. We provide simulation evidence that it works far better than older methods, such as the pairs bootstrap. We also show how to obtain reliable confidence intervals by inverting bootstrap tests. An empirical example illustrates the utility of these procedures.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1135.pdf
File Function: Second version 2008
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1135.

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Length: 34 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:qed:wpaper:1135

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Keywords: Instrumental variables; two-stage least squares; wild bootstrap; pairs bootstrap; residual bootstrap; weak instruments; confidence intervals;

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References

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  1. Russell Davidson & James G. MacKinnon, 2006. "Bootstrap Inference in a Linear Equation Estimated by Instrumental Variables," Working Papers 1024, Queen's University, Department of Economics.
  2. Frank Kleibergen, 2000. "Pivotal Statistics for Testing Structural Parameters in Instrumental Variables Regression," Tinbergen Institute Discussion Papers 00-055/4, Tinbergen Institute.
  3. Gonçalves, Sílvia & KILIAN, Lutz, 2003. "Bootstrapping Autoregressions with Conditional Heteroskedasticity of Unknown Form," Cahiers de recherche 01-2003, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  4. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  5. Davidson, Russell & MacKinnon, James G., 1999. "The Size Distortion Of Bootstrap Tests," Econometric Theory, Cambridge University Press, vol. 15(03), pages 361-376, June.
  6. Marcelo J. Moreira & Jack R. Porter & Gustavo A. Suarez, 2004. "Bootstrap and Higher-Order Expansion Validity When Instruments May Be Weak," NBER Technical Working Papers 0302, National Bureau of Economic Research, Inc.
  7. James G. MacKinnon, 2006. "Bootstrap Methods in Econometrics," Working Papers 1028, Queen's University, Department of Economics.
  8. Davidson, Russell & Flachaire, Emmanuel, 2008. "The wild bootstrap, tamed at last," Journal of Econometrics, Elsevier, vol. 146(1), pages 162-169, September.
  9. Alfonso Flores-Lagunes, 2007. "Finite sample evidence of IV estimators under weak instruments," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 677-694.
  10. Donald W. K. Andrews & Marcelo J. Moreira & James H. Stock, 2006. "Optimal Two-Sided Invariant Similar Tests for Instrumental Variables Regression," Econometrica, Econometric Society, vol. 74(3), pages 715-752, 05.
  11. Marcelo J. Moreira, 2003. "A Conditional Likelihood Ratio Test for Structural Models," Econometrica, Econometric Society, vol. 71(4), pages 1027-1048, 07.
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Citations

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Cited by:
  1. Russell Davidson & James G. MacKinnon, 2014. "Bootstrap tests for overidentification in linear regression models," Working Papers 1318, Queen's University, Department of Economics.
  2. Russell Davidson & James G. MacKinnon, 2008. "Bootstrap Inference in a Linear Equation Estimated by Instrumental Variables," Working Papers 1157, Queen's University, Department of Economics.
  3. Simon A. Broda & Raymond Kan, 2013. "On Distributions of Ratios," UvA-Econometrics Working Papers 13-10, Universiteit van Amsterdam, Dept. of Econometrics.
  4. Lorenzo Camponovo & Taisuke Otsu, 2014. "Robustness of bootstrap in instrumental variable regression," STICERD - Econometrics Paper Series /2014/572, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  5. Kline, Patrick & Santos, Andres, 2012. "Higher order properties of the wild bootstrap under misspecification," Journal of Econometrics, Elsevier, vol. 171(1), pages 54-70.
  6. Makram El-Shagi & Claus Michelsen & Sebastian Rosenschon, 2014. "Regulation, Innovation and Technology Diffusion: Evidence from Building Energy Efficiency Standards in Germany," Discussion Papers of DIW Berlin 1371, DIW Berlin, German Institute for Economic Research.
  7. Russell Davidson & James G. MacKinnon, 2011. "Confidence Sets Based on Inverting Anderson-Rubin Tests," Working Papers 1257, Queen's University, Department of Economics.
  8. Simon A. Broda & Raymond Kan, 2014. "On Distributions of Ratios," Tinbergen Institute Discussion Papers 13-211/III, Tinbergen Institute.
  9. James G. MacKinnon, 2012. "Thirty Years of Heteroskedasticity-Robust Inference," Working Papers 1268, Queen's University, Department of Economics.
  10. Justine S. Hastings & Christopher A. Neilson & Seth D. Zimmerman, 2013. "Are Some Degrees Worth More than Others? Evidence from college admission cutoffs in Chile," NBER Working Papers 19241, National Bureau of Economic Research, Inc.
  11. Noud P.A. van Giersbergen, 2011. "Bootstrapping Subset Test Statistics in IV Regression," UvA-Econometrics Working Papers 11-08, Universiteit van Amsterdam, Dept. of Econometrics.

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