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Boosting GMM with Many Instruments When Some Are Invalid or Irrelevant

Author

Listed:
  • Hao Hao

    (Ford Motor Company)

  • Tae-Hwy Lee

    (Department of Economics, University of California Riverside)

Abstract

When the endogenous variable is an unknown function of observable instruments, its conditional mean can be approximated using the sieve functions of observable instruments. We propose a novel instrument selection method, Double-criteria Boosting (DB), that consistently selects only valid and relevant instruments from a large set of candidate instruments. Monte Carlo compares GMM using DB with other methods such as GMM using Lasso and shows DB-GMM gives lower bias and RMSE. In the empirical application to automobile demand, the DB-GMM estimator is suggesting a more elastic estimate of the price elasticity of demand than the standard 2SLS estimator.

Suggested Citation

  • Hao Hao & Tae-Hwy Lee, 2023. "Boosting GMM with Many Instruments When Some Are Invalid or Irrelevant," Working Papers 202309, University of California at Riverside, Department of Economics.
    • Handle: RePEc:ucr:wpaper:202309
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    File URL: https://economics.ucr.edu/repec/ucr/wpaper/202309.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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