Tests based on t-statistics for IV regression with weak instruments

Resumo

This paper considers tests of the parameter of an endogenous variable in an instrumental variables regression model. The focus is on one-sided conditional t-tests. Theoretical and numerical work shows that the conditional 2SLS and Fuller t-tests perform well even when instruments are weakly correlated with the endogenous variable. When the population F-statistic is as small as two, their power is reasonably close to the power envelopes for similar and non-similar tests which are invariant to rotation transformations of the instruments. This finding is surprising considering the bad performance of two-sided conditional t-tests found in Andrews et al. (2007). We show these tests have bad power because the conditional null distributions of t-statistics are asymmetric when instruments are weak. Taking this asymmetry into account, we propose two-sided tests based on t-statistics. These novel tests are approximately unbiased and can perform as well as the conditional likelihood ratio (CLR) test. (C) 2014 Elsevier B.V. All rights reserved.

Ficha do documento

Tipo

Artigo científico

Ano

2014

Instituição

Elsevier Science Sa

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1016/j.jeconom.2014.03.012

Identificador

oai:repositorio.fgv.br:10438/23405

Temas

Economia

Palavras-chave

Instrumental variables regressionInvariant testsOptimal testsSimilar testsUnbiased testsWeak instrumentsEconomiaAnálise de variância