Improved Inference for the Instrumental Variable Estimator
It is now well known that standard asymptotic inference techniques for instrumental variable estimation perform very poorly in the presence of weak instruments. Specifically, standard asymptotic techniques give spuriously small standard errors, leading investigators to accept apparently tight confidence regions which unfortunately may be very far from the true parameter of interest. We present an improved technique for inference on structural parameters based on reduced form estimates. The "Sstatistic" produces confidence regions based on a joint test of the structural hypothesis and the identification condition. The S statistic converges to the standard asymptotic Wald statistic as identification becomes certain, has much better size properties when the instruments are weak, and may be inverted in closed form to conveniently compute confidence regions. In addition to providing improved inference for instrumental variable estimation, the technique suggested here may be useful in other applications where weak identification is important.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Length:  
Date of creation:  May 1999 
Date of revision:  
Handle:  RePEc:fth:washer:0039 
Contact details of provider:  Postal: Box 353330, Seattle, WA 981933330 Web page: http://www.econ.washington.edu/ Email: More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
 James H. Stock & Jonathan Wright, 2000. "GMM with Weak Identification," Econometrica, Econometric Society, vol. 68(5), pages 10551096, September.
 Charles R. Nelson & Richard Startz & Eric Zivot, 1996.
"Valid Confidence Intervals and Inference in the Presence of Weak Instruments,"
Econometrics
9612002, EconWPA.
 Zivot, Eric & Startz, Richard & Nelson, Charles R, 1998. "Valid Confidence Intervals and Inference in the Presence of Weak Instruments," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 111946, November.
 Zivot, E & Startz, R & Nelson, CR, 1997. "Valid Confidence Intervals and Inference in the Presence of Weak Instruments," Working Papers 9717, University of Washington, Department of Economics.
 Nelson, C.R. & Startz, R. & Zivot, E., 1996. "Valid Confidence Intervals and Inference in the Presence of Weak Instruments," Working Papers 9615, University of Washington, Department of Economics.
 Zivot, E & Startz, R & Nelson, CR, 1997. "Valid Confidence Intervals and Inference in the Presence of Weak Instruments," Discussion Papers in Economics at the University of Washington 9717, Department of Economics at the University of Washington.
 Nelson, C.R. & Startz, R. & Zivot, E., 1996. "Valid Confidence Intervals and Inference in the Presence of Weak Instruments," Discussion Papers in Economics at the University of Washington 9615, Department of Economics at the University of Washington.
 James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
 Jinyong Hahn & Atsushi Inoue, 2002. "A Monte Carlo Comparison Of Various Asymptotic Approximations To The Distribution Of Instrumental Variables Estimators," Econometric Reviews, Taylor & Francis Journals, vol. 21(3), pages 309336.
 Bekker, Paul A, 1994. "Alternative Approximations to the Distributions of Instrumental Variable Estimators," Econometrica, Econometric Society, vol. 62(3), pages 65781, May.
 Frank Kleibergen, 2002. "Pivotal Statistics for Testing Structural Parameters in Instrumental Variables Regression," Econometrica, Econometric Society, vol. 70(5), pages 17811803, September.
 Frank Kleibergen & Eric Zivot, 1998.
"Bayesian and Classical Approaches to Instrumental Variable Regression,"
Working Papers
0063, University of Washington, Department of Economics.
 Kleibergen, Frank & Zivot, Eric, 2003. "Bayesian and classical approaches to instrumental variable regression," Journal of Econometrics, Elsevier, vol. 114(1), pages 2972, May.
 Frank Kleibergen & Eric Zivot, 1998. "Bayesian and Classical Approaches to Instrumental Variable Regression," Discussion Papers in Economics at the University of Washington 0063, Department of Economics at the University of Washington.
 Kleibergen, F.R. & Zivot, E., 1998. "Bayesian and classical approaches to instrumental variable regression," Econometric Institute Research Papers EI 9835, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
 Frank Kleibergen & Eric Zivot, 2003. "Bayesian and Classical Approaches to Instrumental Variable Regression," Working Papers UWEC200221P, University of Washington, Department of Economics.
 Frank Kleibergen & Eric Zivot, 1998. "Bayesian and Classical Approaches to Instrumental Variables Regression," Econometrics 9812002, EconWPA.
 Nelson, C. & Startz, R., 1988.
"Some Furthere Results On The Exact Small Sample Properties Of The Instrumental Variable Estimator,"
Discussion Papers in Economics at the University of Washington
8806, Department of Economics at the University of Washington.
 Nelson, Charles R & Startz, Richard, 1990. "Some Further Results on the Exact Small Sample Properties of the Instrumental Variable Estimator," Econometrica, Econometric Society, vol. 58(4), pages 96776, July.
 Nelson, C. & Startz, R., 1988. "Some Furthere Results On The Exact Small Sample Properties Of The Instrumental Variable Estimator," Working Papers 8806, University of Washington, Department of Economics.
 Charles R. Nelson & Richard Startz, 1988. "Some Further Results on the Exact Small Sample Properties of the Instrumental Variable Estimator," NBER Technical Working Papers 0068, National Bureau of Economic Research, Inc.
 Jiahui Wang & Eric Zivot, 1998. "Inference on Structural Parameters in Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 66(6), pages 13891404, November.
 John Shea, 1996.
"Instrument Relevance in Multivariate Linear Models: A Simple Measure,"
NBER Technical Working Papers
0193, National Bureau of Economic Research, Inc.
 John Shea, 1997. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 348352, May.
 Charles R. Nelson & Richard Startz, 1988.
"The Distribution of the Instrumental Variables Estimator and Its tRatioWhen the Instrument is a Poor One,"
NBER Technical Working Papers
0069, National Bureau of Economic Research, Inc.
 Nelson, Charles R & Startz, Richard, 1990. "The Distribution of the Instrumental Variables Estimator and Its tRatio When the Instrument Is a Poor One," The Journal of Business, University of Chicago Press, vol. 63(1), pages S12540, January.
 Nelson, C. & Startz, R., 1988. "The Distribution Of The Instrumental Variables Estimator And Its TRatio When The Instrument Is A Poor One," Discussion Papers in Economics at the University of Washington 8807, Department of Economics at the University of Washington.
 Nelson, C. & Startz, R., 1988. "The Distribution Of The Instrumental Variables Estimator And Its TRatio When The Instrument Is A Poor One," Working Papers 8807, University of Washington, Department of Economics.
 Blomquist, Soren & Dahlberg, Matz, 1999. "Small Sample Properties of LIML and Jackknife IV Estimators: Experiments with Weak Instruments," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 6988, Jan.Feb..
 Marcelo J. Moreira, 2003. "A Conditional Likelihood Ratio Test for Structural Models," Econometrica, Econometric Society, vol. 71(4), pages 10271048, 07.
 Douglas Staiger & James H. Stock, 1994.
"Instrumental Variables Regression with Weak Instruments,"
NBER Technical Working Papers
0151, National Bureau of Economic Research, Inc.
 Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557586, May.
 Dufour, JeanMarie & Jasiak, Joann, 2001. "Finite Sample Limited Information Inference Methods for Structural Equations and Models with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 81543, August.
 Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, June.
 DUFOUR, JeanMarie & TAAMOUTI, Mohamed, 2003.
"ProjectionBased Statistical Inference in Linear Structural Models with Possibly Weak Instruments,"
Cahiers de recherche
200310, Universite de Montreal, Departement de sciences economiques.
 JeanMarie Dufour & Mohamed Taamouti, 2005. "ProjectionBased Statistical Inference in Linear Structural Models with Possibly Weak Instruments," Econometrica, Econometric Society, vol. 73(4), pages 13511365, 07.
 DUFOUR, JeanMarie & TAAMOUTI, Mohamed, 2003. "ProjectionBased Statistical Inference in Linear Structural Models with Possibly Weak Instruments," Cahiers de recherche 082003, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
 JeanMarie Dufour & Mohamed Taamouti, 2003. "ProjectionBased Statistical Inference in Linear Structural Models with Possibly Weak Instruments," CIRANO Working Papers 2003s39, CIRANO.
 Peter C.B. Phillips, 1982.
"Exact Small Sample Theory in the Simultaneous Equations Model,"
Cowles Foundation Discussion Papers
621, Cowles Foundation for Research in Economics, Yale University.
 Phillips, P.C.B., 1983. "Exact small sample theory in the simultaneous equations model," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 8, pages 449516 Elsevier.
 Jinyong Hahn & Jerry Hausman, 1999.
"A New Specification Test for the Validity of Instrumental Variables,"
Working papers
9911, Massachusetts Institute of Technology (MIT), Department of Economics.
 Jinyong Hahn & Jerry Hausman, 2002. "A New Specification Test for the Validity of Instrumental Variables," Econometrica, Econometric Society, vol. 70(1), pages 163189, January.
 Peter C.B. Phillips, 1987.
"Partially Identified Econometric Models,"
Cowles Foundation Discussion Papers
845R, Cowles Foundation for Research in Economics, Yale University, revised Aug 1988.
 Phillips, P.C.B., 1989. "Partially Identified Econometric Models," Econometric Theory, Cambridge University Press, vol. 5(02), pages 181240, August.
 Hall, Alastair R & Rudebusch, Glenn D & Wilcox, David W, 1996.
"Judging Instrument Relevance in Instrumental Variables Estimation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 28398, May.
 Alastair R. Hall & Glenn D. Rudebusch & David W. Wilcox, 1994. "Judging instrument relevance in instrumental variables estimation," Finance and Economics Discussion Series 943, Board of Governors of the Federal Reserve System (U.S.).
 Gary Chamberlain & Guido Imbens, 2004. "Random Effects Estimators with many Instrumental Variables," Econometrica, Econometric Society, vol. 72(1), pages 295306, 01.
 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 51829, October.
 Leslie G. Godfrey, 1999. "Instrument Relevance in Multivariate Linear Models," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 550552, August.
 JeanMarie Dufour, 1997. "Some Impossibility Theorems in Econometrics with Applications to Structural and Dynamic Models," Econometrica, Econometric Society, vol. 65(6), pages 13651388, November.
 In Choi & Peter C.B. Phillips, 1989.
"Asymptotic and Finite Sample Distribution Theory for IV Estimators and Tests in Partially Identified Structural Equations,"
Cowles Foundation Discussion Papers
929, Cowles Foundation for Research in Economics, Yale University.
 Choi, In & Phillips, Peter C. B., 1992. "Asymptotic and finite sample distribution theory for IV estimators and tests in partially identified structural equations," Journal of Econometrics, Elsevier, vol. 51(12), pages 113150.
 KaFu, Wong, 1999. "A Simulation Comparison of Inference for Instrumental Variable Estimators," Departmental Working Papers _113, Chinese University of Hong Kong, Department of Economics.
 JeanMarie Dufour & Lynda Khalaf, 1999. "Simulation Based Finite and LargeSample Inference Methods in Simultaneous Equations," Computing in Economics and Finance 1999 824, Society for Computational Economics.
 Maddala, G S, 1974. "Some Small Sample Evidence on Tests of Significance in Simultaneous Equations Models," Econometrica, Econometric Society, vol. 42(5), pages 84151, September.
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.
When requesting a correction, please mention this item's handle: RePEc:fth:washer:0039. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.