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Nonparametric instrumental variable estimation

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  • Daniel Wilhelm
  • Denis Chetverikov
  • Dongwoo Kim

Abstract

This paper introduces Stata commands [R] npivreg and [R] npivregcv, which implement nonparametric instrumental variable (NPIV) estimation methods without and with a cross-validated choice of tuning parameters, respectively. Both commands are able to impose monotonicity of the estimated function. The use of such a shape restriction may signicantly improve the performance of the NPIV estimator (Chetverikov and Wilhelm 2017). This is because the ill-posedness of the NPIV estimation problem leads to unconstrained estimators that suffer from particularly poor statistical properties such as very high variance. The constrained estimator that imposes the monotonicity, on the other hand, signicantly reduces variance by removing oscillations of the estimator that is nonmonotone.We provide a small Monte Carlo experiment to study the estimators' finite sample properties and an application to the estimation of gasoline demand functions.

Suggested Citation

  • Daniel Wilhelm & Denis Chetverikov & Dongwoo Kim, 2017. "Nonparametric instrumental variable estimation," CeMMAP working papers 47/17, Institute for Fiscal Studies.
    • Handle: RePEc:azt:cemmap:47/17
    DOI: 10.1920/wp.cem.2017.4717
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    References listed on IDEAS

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    1. Denis Chetverikov & Daniel Wilhelm, 2017. "Nonparametric Instrumental Variable Estimation Under Monotonicity," Econometrica, Econometric Society, vol. 85, pages 1303-1320, July.
    2. Denis Chetverikov & Dongwoo Kim & Daniel Wilhelm, 2018. "Nonparametric instrumental-variable estimation," Stata Journal, StataCorp LLC, vol. 18(4), pages 937-950, December.
    3. S. Darolles & Y. Fan & J. P. Florens & E. Renault, 2011. "Nonparametric Instrumental Regression," Econometrica, Econometric Society, vol. 79(5), pages 1541-1565, September.
    4. Chetverikov, Denis & Wilhelm, Daniel & Kim, Dongwoo, 2021. "An Adaptive Test Of Stochastic Monotonicity," Econometric Theory, Cambridge University Press, vol. 37(3), pages 495-536, June.
    5. Richard Blundell & Joel L. Horowitz & Matthias Parey, 2012. "Measuring the price responsiveness of gasoline demand: Economic shape restrictions and nonparametric demand estimation," Quantitative Economics, Econometric Society, vol. 3(1), pages 29-51, March.
    6. Whitney K. Newey & James L. Powell, 2003. "Instrumental Variable Estimation of Nonparametric Models," Econometrica, Econometric Society, vol. 71(5), pages 1565-1578, September.
    7. Joel L. Horowitz, 2011. "Applied Nonparametric Instrumental Variables Estimation," Econometrica, Econometric Society, vol. 79(2), pages 347-394, March.
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