Testing Overidentifying Restrictions with Many Instruments and Heteroskedasticity

15 Pages Posted: 15 Jul 2013

See all articles by John C. Chao

John C. Chao

University of Maryland

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Whitney K. Newey

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Norman R. Swanson

Rutgers University - Department of Economics; Rutgers, The State University of New Jersey - Department of Economics

Tiemen Woutersen

University of Arizona

Date Written: June 1, 2010

Abstract

This paper gives a test of overidentifying restrictions that is robust to many instruments and heteroskedasticity. It is based on a jackknife version of the Sargan test statistic, having a numerator that is the objective function minimized by the JIVE2 estimator of Angrist, Imbens, and Krueger (1999). Correct asymptotic critical values are derived for this test when the number of instruments grows large, at a rate up to the sample size. It is also shown that the test is valid when the number instruments is fixed and there is homoskedasticity. This test improves on recently proposed tests by allowing for heteroskedasticity and by avoiding assumptions on the instrument projection matrix. The asymptotics is based on the heteroskedasticity robust many instrument asymptotics of Chao et. al. (2010).

Keywords: heteroskedasticity, instrumental variables, jackknife estimation, many instruments, weak instruments

JEL Classification: C13, C31

Suggested Citation

Chao, John C. and Hausman, Jerry A. and Newey, Whitney K. and Swanson, Norman Rasmus and Swanson, Norman Rasmus and Woutersen, Tiemen, Testing Overidentifying Restrictions with Many Instruments and Heteroskedasticity (June 1, 2010). Available at SSRN: https://ssrn.com/abstract=1856081 or http://dx.doi.org/10.2139/ssrn.1856081

John C. Chao

University of Maryland ( email )

Department of Economics
College Park, MD 20742
United States
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Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Whitney K. Newey (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Norman Rasmus Swanson

Rutgers University - Department of Economics ( email )

NJ
United States

HOME PAGE: http://econweb.rutgers.edu/nswanson/

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
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848-932-7432 (Phone)

HOME PAGE: http://econweb.rutgers.edu/nswanson/

Tiemen Woutersen

University of Arizona ( email )

Department of Economics
Tucson, AZ 85721
United States

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