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Robust Conditional Wald Inference for Over-Identified IV

Author

Listed:
  • David S. Lee
  • Justin McCrary
  • Marcelo J. Moreira
  • Jack Porter
  • Luther Yap

Abstract

For the over-identified linear instrumental variables model, researchers commonly report the 2SLS estimate along with the robust standard error and seek to conduct inference with these quantities. If errors are homoskedastic, one can control the degree of inferential distortion using the first-stage F critical values from Stock and Yogo (2005), or use the robust-to-weak instruments Conditional Wald critical values of Moreira (2003). If errors are non-homoskedastic, these methods do not apply. We derive the generalization of Conditional Wald critical values that is robust to non-homoskedastic errors (e.g., heteroskedasticity or clustered variance structures), which can also be applied to nonlinear weakly-identified models (e.g. weakly-identified GMM).

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  • David S. Lee & Justin McCrary & Marcelo J. Moreira & Jack Porter & Luther Yap, 2023. "Robust Conditional Wald Inference for Over-Identified IV," Papers 2311.15952, arXiv.org.
  • Handle: RePEc:arx:papers:2311.15952
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    References listed on IDEAS

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    1. Moreira, Humberto & Moreira, Marcelo J., 2019. "Optimal two-sided tests for instrumental variables regression with heteroskedastic and autocorrelated errors," Journal of Econometrics, Elsevier, vol. 213(2), pages 398-433.
    2. Marcelo J. Moreira, 2003. "A Conditional Likelihood Ratio Test for Structural Models," Econometrica, Econometric Society, vol. 71(4), pages 1027-1048, July.
    3. Humberto Moreira & Marcelo Moreira, 2016. "Optimal two-sided tests for instrumental variables regression with heteroskedastic and autocorrelated errors," CeMMAP working papers 25/16, Institute for Fiscal Studies.
    4. Van de Sijpe, Nicolas & Windmeijer, Frank, 2023. "On the power of the conditional likelihood ratio and related tests for weak-instrument robust inference," Journal of Econometrics, Elsevier, vol. 235(1), pages 82-104.
    5. Frank Kleibergen, 2005. "Testing Parameters in GMM Without Assuming that They Are Identified," Econometrica, Econometric Society, vol. 73(4), pages 1103-1123, July.
    6. Jean-Marie Dufour, 1997. "Some Impossibility Theorems in Econometrics with Applications to Structural and Dynamic Models," Econometrica, Econometric Society, vol. 65(6), pages 1365-1388, November.
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