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On bootstrap validity for specification tests with weak instruments

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Abstract

This paper investigates the asymptotic validity of the bootstrap for Durbin-WuHausman (DWH) specification tests when instrumental variables (IVs) may be arbitrary weak. It is shown that under strong identification, the bootstrap offers a better approximation than the usual asymptotic 2 distributions. However, the bootstrap provides only a first-order approximation when instruments are weak. These results show unlike the Wald-statistic based on a k-class type estimator (Moreira et al., 2009), the bootstrap is valid even for the Wald-type of DWH statistics in the presence of weak instruments.

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File URL: http://eprints.utas.edu.au/16875/1/2013-05_Bootstrapping_DWHTestsEctxJ_Doko.pdf
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Bibliographic Info

Paper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 16875.

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Length: 23 pages
Date of creation: 05 Aug 2013
Date of revision: 05 Aug 2013
Publication status: Published by the University of Tasmania. Discussion paper 2013-05
Handle: RePEc:tas:wpaper:16875

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Keywords: Specification tests; weak instruments; bootstrap.;

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  1. Some Weekend Reading
    by Dave Giles in Econometrics Beat: Dave Giles' Blog on 2013-11-01 17:41:00
  2. Some Weekend Reading
    by ? in R-bloggers on 2013-11-01 17:41:00

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