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Supposedly Strong Instruments and Good Leverage Points

Author

Listed:
  • Darwin Ugarte Ontiveros

    () (Center for Research in the Economics of Development, University of Namur)

  • Vincenzo Verardi

    () (Center for Research in the Economics of Development, University of Namur; European Center for Advanced Research in Economics and Statistics, Universite Libre de Bruxelles)

Abstract

In this paper, we warn on the overoptimistic conclusions led by weak instruments testing when good leverage points are present in the first stage of an IV estimation. Some simulations and an empirical application are provided to illustrate the point raised.

Suggested Citation

  • Darwin Ugarte Ontiveros & Vincenzo Verardi, 2012. "Supposedly Strong Instruments and Good Leverage Points," Working Papers 1203, University of Namur, Department of Economics.
  • Handle: RePEc:nam:wpaper:1203
    as

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    File URL: http://www.fundp.ac.be/eco/economie/recherche/wpseries/wp/1203.pdf
    File Function: First version, 2012
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    References listed on IDEAS

    as
    1. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
    2. Donald W.K. Andrews & James H. Stock, 2005. "Inference with Weak Instruments," Cowles Foundation Discussion Papers 1530, Cowles Foundation for Research in Economics, Yale University.
    3. 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.
    4. McKenzie, David & Seynabou Sakho, Yaye, 2010. "Does it pay firms to register for taxes? The impact of formality on firm profitability," Journal of Development Economics, Elsevier, vol. 91(1), pages 15-24, January.
    5. Rodolphe Desbordes & Vincenzo Verardi, 2012. "A robust instrumental-variables estimator," Stata Journal, StataCorp LP, vol. 12(2), pages 169-181, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Instrumental variables; Weak instruments; Outliers; Robust statistics;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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