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On the relevance of weaker instruments

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Abstract

We study the asymptotic properties of the standard GMM estimator when additional moment restrictions, weaker than the original ones, are available. We provide conditions under which these additional weaker restrictions improve the efficiency of the GMM estimator. To detect ”spurious” identification that may come from invalid moments, we rely on the Hansen J-test that assesses the compatibility between existing restrictions and additional ones. Our simulations reveal that the J-test has good power properties and that its power increases with the weakness of the additional restrictions. Our theoretical characterization of the J-test provides some intuition for why that is.

Suggested Citation

  • Bertille Antoine & Eric Renault, 2014. "On the relevance of weaker instruments," Discussion Papers dp14-04, Department of Economics, Simon Fraser University, revised 10 Oct 2016.
    • Handle: RePEc:sfu:sfudps:dp14-04
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    References listed on IDEAS

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    1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
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    7. Li, Yingying & Mykland, Per A. & Renault, Eric & Zhang, Lan & Zheng, Xinghua, 2014. "Realized Volatility When Sampling Times Are Possibly Endogenous," Econometric Theory, Cambridge University Press, vol. 30(3), pages 580-605, June.
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    12. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 111-132, Fall.
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    Cited by:

    1. Bertille Antoine & Otilia, 2015. "Inference in linear models with structural changes and mixed identification strength," Discussion Papers dp15-05, Department of Economics, Simon Fraser University.
    2. Hao, Bowen & Prokhorov, Artem & Qian, Hailong, 2018. "Moment redundancy test with application to efficiency-improving copulas," Economics Letters, Elsevier, vol. 171(C), pages 29-33.
    3. Mandasari, Putriesti & Luckstead, Jeff, 2025. "Examining the nexus between exporting status and CO2 productivity in Indonesian agri-based manufacturing," Energy Economics, Elsevier, vol. 143(C).
    4. Antoine, Bertille & Boldea, Otilia & Zaccaria, Niccolò, 2024. "Efficient two-sample instrumental variable estimators with change points and near-weak identification," Other publications TiSEM a546c23b-272e-4ba9-8b94-a, Tilburg University, School of Economics and Management.
    5. Grundke, Robert & Moser, Christoph, 2019. "Hidden protectionism? Evidence from non-tariff barriers to trade in the United States," Journal of International Economics, Elsevier, vol. 117(C), pages 143-157.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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