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Instrumental variables estimation with many weak instruments using regularized JIVE

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  • Hansen, Christian
  • Kozbur, Damian

Abstract

We consider instrumental variables regression in models where the number of available instruments may be larger than the sample size and consistent model selection in the first stage may not be possible. Such a situation may arise when there are many weak instruments. With many weak instruments, existing approaches to first-stage regularization can lead to a large bias relative to standard errors. We propose a jackknife instrumental variables estimator (JIVE) with regularization at each jackknife iteration that helps alleviate this bias. We derive the limiting behavior for a ridge-regularized JIV estimator (RJIVE), verifying that the RJIVE is consistent and asymptotically normal under conditions which allow for more instruments than observations and do not require consistent model selection. We provide simulation results that demonstrate the proposed RJIVE performs favorably in terms of size of tests and risk properties relative to other many-weak instrument estimation strategies in high-dimensional settings. We also apply the RJIVE to the Angrist and Krueger (1991) example where it performs favorably relative to other many-instrument robust procedures.

Suggested Citation

  • Hansen, Christian & Kozbur, Damian, 2014. "Instrumental variables estimation with many weak instruments using regularized JIVE," Journal of Econometrics, Elsevier, vol. 182(2), pages 290-308.
  • Handle: RePEc:eee:econom:v:182:y:2014:i:2:p:290-308
    DOI: 10.1016/j.jeconom.2014.04.022
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Alexandre Belloni & Victor Chernozhukov & Denis Chetverikov & Christian Hansen & Kengo Kato, 2018. "High-dimensional econometrics and regularized GMM," CeMMAP working papers CWP35/18, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    2. Cheng Hsiao & Qiankun Zhou, 2017. "JIVE for Panel Dynamic Simultaneous Equations Models," Departmental Working Papers 2017-10, Department of Economics, Louisiana State University.
    3. Carrasco, Marine & Tchuente, Guy, 2015. "Regularized LIML for many instruments," Journal of Econometrics, Elsevier, vol. 186(2), pages 427-442.
    4. Christian Hansen & Damian Kozbur & Sanjog Misra, 2016. "Targeted undersmoothing," ECON - Working Papers 282, Department of Economics - University of Zurich, revised Apr 2018.
    5. Damian Kozbur, 2017. "Testing-Based Forward Model Selection," American Economic Review, American Economic Association, vol. 107(5), pages 266-269, May.
    6. Shi, Zhentao, 2016. "Econometric estimation with high-dimensional moment equalities," Journal of Econometrics, Elsevier, vol. 195(1), pages 104-119.
    7. Victor Chernozhukov & Christian Hansen & Martin Spindler, 2015. "Post-Selection and Post-Regularization Inference in Linear Models with Many Controls and Instruments," American Economic Review, American Economic Association, vol. 105(5), pages 486-490, May.
    8. Victor Chernozhukov & Christian Hansen & Martin Spindler, 2015. "Valid Post-Selection and Post-Regularization Inference: An Elementary, General Approach," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 649-688, August.
    9. repec:eee:econom:v:200:y:2017:i:2:p:251-259 is not listed on IDEAS
    10. Guy Tchuente, 2016. "Estimation of social interaction models using regularization," Studies in Economics 1607, School of Economics, University of Kent.
    11. Kiyotaka Nakashima & Masahiko Shibamoto & Koji Takahashi, 2017. "Risk-Taking Channel of Unconventional Monetary Policies in Bank Lending," Discussion Paper Series DP2017-24, Research Institute for Economics & Business Administration, Kobe University.
    12. Marine Carrasco & Guy Tchuente, 2016. "Efficient Estimation with Many Weak Instruments Using Regularization Techniques," Econometric Reviews, Taylor & Francis Journals, vol. 35(8-10), pages 1609-1637, November.
    13. Bohacek, Radim & Myck, Michal, 2017. "Economic Consequences of Political Persecution," IZA Discussion Papers 11136, Institute for the Study of Labor (IZA).

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