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Efficient Inference with Time-Varying Identification Strength

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Abstract

In the last two decades, there has been a lot of empirical evidence suggesting that many macroeconometric and financial models (e.g. for inflation, interest rates, or exchange rates) are subject to both parameter instability and identification problems. In this paper, we address both issues in a unified framework, and provide a comprehensive treatment of the link between them. Changes in identification strength provide an additional source of information that is used to improve estimation. More generally, we show that detecting and locating changes in instrument strength is essential for efficient asymptotic inference, and we provide a step-by-step guide for practitioners. In our simulation studies, our global inference procedures show very good size and power properties.

Suggested Citation

  • Bertille Antoine & Otilia Boldea, 2014. "Efficient Inference with Time-Varying Identification Strength," Discussion Papers dp14-03, Department of Economics, Simon Fraser University.
    • Handle: RePEc:sfu:sfudps:dp14-03
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    More about this item

    Keywords

    GMM; Identification; Weak instruments; Break point; Change in identification strength;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • 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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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