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Finite sample evidence of IV estimators under weak instruments

  • Alfonso Flores-Lagunes

    (Department of Economics, Eller College of Management, University of Arizona, Tucson, AZ, USA)

We present finite sample evidence on different IV estimators available for linear models under weak instruments; explore the application of the bootstrap as a bias reduction technique to attenuate their finite sample bias; and employ three empirical applications to illustrate and provide insights into the relative performance of the estimators in practice. Our evidence indicates that the random-effects quasi-maximum likelihood estimator outperforms alternative estimators in terms of median point estimates and coverage rates, followed by the bootstrap bias-corrected version of LIML and LIML. However, our results also confirm the difficulty of obtaining reliable point estimates in models with weak identification and moderate-size samples. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.916
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File URL: http://qed.econ.queensu.ca:80/jae/2007-v22.3/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 22 (2007)
Issue (Month): 3 ()
Pages: 677-694

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Handle: RePEc:jae:japmet:v:22:y:2007:i:3:p:677-694
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  1. Angrist, J D & Imbens, G W & Krueger, A B, 1999. "Jackknife Instrumental Variables Estimation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 57-67, Jan.-Feb..
  2. Nelson, C. & Startz, R., 1988. "The Distribution Of The Instrumental Variables Estimator And Its T-Ratio When The Instrument Is A Poor One," Discussion Papers in Economics at the University of Washington 88-07, Department of Economics at the University of Washington.
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  5. John Shea, 1997. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 348-352, May.
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  7. Blomquist, Soren, 1996. "Estimation methods for male labor supply functions How to take account of nonlinear taxes," Journal of Econometrics, Elsevier, vol. 70(2), pages 383-405, February.
  8. Jinyong Hahn & Jerry Hausman, 2003. "Weak Instruments: Diagnosis and Cures in Empirical Econometrics," American Economic Review, American Economic Association, vol. 93(2), pages 118-125, May.
  9. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
  10. Donald W. K. Andrews & Moshe Buchinsky, 2000. "A Three-Step Method for Choosing the Number of Bootstrap Repetitions," Econometrica, Econometric Society, vol. 68(1), pages 23-52, January.
  11. Hahn, Jinyong & Hausman, Jerry, 2002. "Notes on bias in estimators for simultaneous equation models," Economics Letters, Elsevier, vol. 75(2), pages 237-241, April.
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