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A comparison of bias approximations for the 2SLS estimator

Author

Listed:
  • Maurice Bun

    (Institute for Fiscal Studies)

  • Frank Windmeijer

    (Institute for Fiscal Studies and University of Bristol)

Abstract

We consider the bias of the 2SLS estimator in the linear instrumental variables regression with one endogenous regressor only. By using asymptotic expansion techniques we approximate 2SLS coefficient estimation bias under various scenarios regarding the number and strength of instruments. The resulting approximation encompasses existing bias approximations, which are valid in particular cases only. Simulations show that the developed approximation gives an accurate description of the 2SLS bias in case of either weak or many instruments or both.

Suggested Citation

  • Maurice Bun & Frank Windmeijer, 2010. "A comparison of bias approximations for the 2SLS estimator," CeMMAP working papers CWP07/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:cemmap:07/10
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    File URL: http://cemmap.ifs.org.uk/wps/cwp0710.pdf
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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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