The fact that weak instruments lead to spurious inference is now widely recognized. In this paper we ask whether spurious inference occurs more generally in weakly identified models. To distinguish between models where spurious inference will occur from those where it does not, we introduce the Zero-Information-Limit-Condition (ZILC). When ZILC holds, the information or precision of parameter estimates is overestimated. We discuss how ZILC applies to models encountered in practice and show that spurious inference does occur when ZILC holds.
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Paper provided by University of Washington, Department of Economics in its series Working Papers with number
UWEC-2004-03-FC.
Length: Date of creation: Feb 2004 Date of revision: Publication status: Forthcoming in Journal of Econometrics Handle: RePEc:udb:wpaper:uwec-2004-03-fc
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