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
Date Written: September 10, 2004
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  statistic) to test whether the given instruments are weak.
JEL Classification: C01
Suggested Citation: Suggested Citation