Testing for Weak Instruments in Linear IV Regression
Weak instruments can produce biased IV estimators and hypothesis tests with large size distortions. But what, precisely, are weak instruments, and how does one detect them in practice? This paper proposes quantitative definitions of weak instruments based on the maximum IV estimator bias, or the maximum Wald test size distortion, when there are multiple endogenous regressors. We tabulate critical values that enable using the first-stage F-statistic (or, when there are multiple endogenous regressors, the Cragg-Donald (1993) statistic) to test whether given instruments are weak. A technical contribution is to justify sequential asymptotic approximations for IV statistics with many weak instruments.
|Date of creation:||Nov 2002|
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- Donald, Stephen G & Newey, Whitney K, 2001.
"Choosing the Number of Instruments,"
Econometric Society, vol. 69(5), pages 1161-1191, September.
- Donald, Stephen G. & Whitney Newey, 1999. "Choosing the Number of Instruments," Working papers 99-05, Massachusetts Institute of Technology (MIT), Department of Economics.
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- repec:cup:etheor:v:9:y:1993:i:2:p:222-40 is not listed on IDEAS Full references (including those not matched with items on IDEAS)
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