Testing for Weak Instruments in Linear IV Regression

IDENTIFICATION AND INFERENCE FOR ECONOMETRIC MODELS: ESSAYS IN HONOR OF THOMAS ROTHENBERG, 2005

48 Pages Posted: 7 Jan 2011 Last revised: 31 Jul 2013

James H. Stock

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Motohiro Yogo

Princeton University - Department of Economics; National Bureau of Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: September 10, 2004

Abstract

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 the given instruments are weak.

JEL Classification: C01

Suggested Citation

Stock, James H. and Yogo, Motohiro, Testing for Weak Instruments in Linear IV Regression (September 10, 2004). IDENTIFICATION AND INFERENCE FOR ECONOMETRIC MODELS: ESSAYS IN HONOR OF THOMAS ROTHENBERG, 2005 . Available at SSRN: https://ssrn.com/abstract=1734933

James H. Stock

Harvard University - Department of Economics ( email )

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Harvard University - Harvard Kennedy School (HKS) ( email )

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Motohiro Yogo (Contact Author)

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research

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