Andrea Carriero () (Queen Mary, University of London) George Kapetanios () (Queen Mary, University of London) Massimiliano Marcellino (Bocconi University and EUI)
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This paper proposes and discusses an instrumental variable estimator that can be of particular relevance when many instruments are available. Intuition and recent work (see, e.g., Hahn (2002)) suggest that parsimonious devices used in the construction of the final instruments, may provide effective estimation strategies. Shrinkage is a well known approach that promotes parsimony. We consider a new shrinkage 2SLS estimator. We derive a consistency result for this estimator under general conditions, and via Monte Carlo simulation show that this estimator has good potential for inference in small samples.
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Paper provided by Queen Mary, University of London, Department of Economics in its series Working Papers with number
626.
Find related papers by JEL classification: C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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