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Are "Nearly Exogenous Instruments" reliable?

  • Berkowitz, Daniel
  • Caner, Mehmet
  • Fang, Ying

We show that when instruments are nearly exogenous, the two stage least squares t-statistic unpredictably over-rejects or under-rejects the null hypothesis that the endogenous regressor is insignificant and Anderson-Rubin test over-rejects the null. We prove that in the limit these tests are no longer nuisance parameter free.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4S7JFT8-6/2/5f39589d5235aa33132b2f98cc02072a
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 101 (2008)
Issue (Month): 1 (October)
Pages: 20-23

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Handle: RePEc:eee:ecolet:v:101:y:2008:i:1:p:20-23
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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