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An Endogeneity-Corrected Bootstrap Test On Instrument Relevance In Instrumental Variables Estimation

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  • Jinook Jeong

    (Yonsei University)

Abstract

It is well known that IV estimation produces considerable bias when the instruments are irrelevant. Previous studies have suggested several instrument screening tests to avoid such bias. In this paper, an LR test based on the exact finite sample distribution of R2 is proposed for a more powerful instrument screening test. It is also analyzed how the degree of endogeneity affects bias in IV estimation. Then, a nonparametric instrument screening test with endogeneity adjustment is suggested. The finite sample performance of the new test is evaluated in a Monte Carlo simulation.

Suggested Citation

  • Jinook Jeong, 2004. "An Endogeneity-Corrected Bootstrap Test On Instrument Relevance In Instrumental Variables Estimation," Korean Economic Review, Korean Economic Association, vol. 20, pages 3-33.
    • Handle: RePEc:kea:keappr:ker-20040630-20-1-01
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    More about this item

    Keywords

    IV Estimation; Instrument Relevance; Bootstrap; Endogeneity;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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