Specification Testing In Models With Many Instruments
This paper studies the asymptotic validity of the Anderson–Rubin ( AR ) test and the J test for overidentifying restrictions in linear models with many instruments. When the number of instruments increases at the same rate as the sample size, we establish that the conventional AR and J tests are asymptotically incorrect. Some versions of these tests, which are developed for situations with moderately many instruments, are also shown to be asymptotically invalid in this framework. We propose modifications of the AR and J tests that deliver asymptotically correct sizes. Importantly, the corrected tests are robust to the numerosity of the moment conditions in the sense that they are valid for both few and many instruments. The simulation results illustrate the excellent properties of the proposed tests.
Volume (Year): 27 (2011)
Issue (Month): 02 (April)
|Contact details of provider:|| Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK|
Web page: http://journals.cambridge.org/jid_ECT
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Torben G. Andersen & Hyung-Jin Chung & Bent E. Sorensen, .
"EMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study,"
Computing in Economics and Finance 1997
6, Society for Computational Economics.
- Andersen, Torben G & Sorensen, Bent E, 1996. "GMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 328-52, July.
- Torben G. Andersen & Bent E. Sorensen, 1995. "GMM Estimation of a Stochastic Volatility Model: A Monte Carlo Study," Discussion Papers 95-19, University of Copenhagen. Department of Economics.
- Donald, Stephen G. & Imbens, Guido W. & Newey, Whitney K., 2003. "Empirical likelihood estimation and consistent tests with conditional moment restrictions," Journal of Econometrics, Elsevier, vol. 117(1), pages 55-93, November.
- Andrews, Donald W.K. & Stock, James H., 2007. "Testing with many weak instruments," Journal of Econometrics, Elsevier, vol. 138(1), pages 24-46, May.
- John C. Chao & Norman Rasmus Swanson, 2004.
"Consistent Estimation with a Large Number of Weak Instruments,"
Yale School of Management Working Papers
ysm374, Yale School of Management.
- John C. Chao & Norman R. Swanson, 2005. "Consistent Estimation with a Large Number of Weak Instruments," Econometrica, Econometric Society, vol. 73(5), pages 1673-1692, 09.
- Chao, John Chao & Norman R. Swanson, 2003. "Consistent Estimation with a Large Number of Weak Instruments," Cowles Foundation Discussion Papers 1417, Cowles Foundation for Research in Economics, Yale University.
- John Chao & Norman Swanson, 2004. "Consistent Estimation with a Large Number of Weak Instruments," Departmental Working Papers 200421, Rutgers University, Department of Economics.
- Harry H. Kelejian & Ingmar R. Prucha, 1999.
"On the Asymptotic Distribution of the Moran I Test Statistic with Applications,"
Electronic Working Papers
99-002, University of Maryland, Department of Economics.
- H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, vol. 104(2), pages 219-257, September.
- Burnside, Craig & Eichenbaum, Martin S, 1996. "Small-Sample Properties of GMM-Based Wald Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 294-308, July.
- Koenker, Roger & Machado, Jose A. F., 1999. "GMM inference when the number of moment conditions is large," Journal of Econometrics, Elsevier, vol. 93(2), pages 327-344, December.
- Joshua D. Angrist & Alan B. Krueger, 1990.
"Does Compulsory School Attendance Affect Schooling and Earnings?,"
NBER Working Papers
3572, National Bureau of Economic Research, Inc.
- Joshua D. Angrist & Alan B. Keueger, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 979-1014.
- Bekker, Paul A, 1994. "Alternative Approximations to the Distributions of Instrumental Variable Estimators," Econometrica, Econometric Society, vol. 62(3), pages 657-81, May.
- Ledoit, Olivier & Wolf, Michael, 2004.
"A well-conditioned estimator for large-dimensional covariance matrices,"
Journal of Multivariate Analysis,
Elsevier, vol. 88(2), pages 365-411, February.
- Ledoit, Olivier & Wolf, Michael, 2000. "A well conditioned estimator for large dimensional covariance matrices," DES - Working Papers. Statistics and Econometrics. WS 10087, Universidad Carlos III de Madrid. Departamento de Estadística.
When requesting a correction, please mention this item's handle: RePEc:cup:etheor:v:27:y:2011:i:02:p:427-441_00. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.