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Nonparametric Instrumental Variable Estimation in Practice

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Author Info

  • Michael Cohen

    ()
    (New York University)

  • Philip Shaw

    ()
    (Fordham University)

  • Tao Chen

    ()
    (University of Connecticut)

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    Abstract

    In this paper we examine the nite sample performance of two estimators one developed by Blundell, Chen, and Kristensen (2007) (BCK) and the other by Gagliardini and Scaillet (2007) (TIR). This paper focuses on the generalization and expansion of these estimators to a full nonparametric speci cation with multiple regressors. In relation to the classic weak instruments literature, we provide intuition on the examination of instruments relevance when the structural function is assumed to be unknown. Simulations indicate that both estimators perform quite well in higher dimensions. This research also provides insights on the performance of bootstrapped con dence intervals for both estimators. We document that the BCK estimator's coverage probabilities are near their nominal levels even in small samples as long as the sieve order of expansion is restricted. The coverage probability for the TIR estimator's bootstrapped con dence intervals are near their nominal levels even when the order of sieve approximation is large. These results suggest that in small samples the TIR estimator has a much smaller bias then the BCK estimator but its variance is much larger. We provide two empirical examples. One is the classic wage returns to education example and the other looks at the relationship of corruption and GDP to economic growth. Results here suggests that the impact of corruption on growth depends nonlinearly on a countries level of development.

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    File URL: http://fmpc.uconn.edu/publications/rr/rr111.pdf
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    Bibliographic Info

    Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number 111.

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    Length: 35 pages
    Date of creation: Nov 2008
    Date of revision:
    Handle: RePEc:zwi:fpcrep:111

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    Related research

    Keywords: Nonparametric; Instrumental Variables; Information Regularized Estimators;

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