Efficient Estimation with Many Weak Instruments Using Regularization Techniques

31 Pages Posted: 19 Oct 2013 Last revised: 26 Jan 2019

See all articles by Marine Carrasco

Marine Carrasco

University of Montreal - Departement de Ciences Economiques

Guy Tchuente

University of Kent

Date Written: July 18, 2013

Abstract

The problem of weak instruments is due to a very small concentration parameter. To boost the concentration parameter, we propose to increase the number of instruments to a large number or even up to a continuum. However, in finite samples, the inclusion of an excessive number of moments may be harmful. To address this issue, we use regularization techniques as in Carrasco (2012) and Carrasco and Tchuente (2013). We show that normalized regularized 2SLS and LIML are consistent and asymptotically normally distributed. Moreover, their asymptotic variances reach the semiparametric efficiency bound unlike most competing estimators. Our simulations show that the leading regularized estimators (LF and T of LIML) work very well (is nearly median unbiased) even in the case of relatively weak instruments.

Keywords: Many weak instruments, LIML, 2SLS, regularization methods

Suggested Citation

Carrasco, Marine and Tchuente, Guy, Efficient Estimation with Many Weak Instruments Using Regularization Techniques (July 18, 2013). CIRANO - Scientific Publications 2013s-20, Available at SSRN: https://ssrn.com/abstract=2342172 or http://dx.doi.org/10.2139/ssrn.2342172

Marine Carrasco (Contact Author)

University of Montreal - Departement de Ciences Economiques ( email )

C.P. 6128, succursale Centre-Ville
Montreal, Quebec H3C 3J7
Canada
(514) 343-2394 (Phone)

HOME PAGE: http://www.sceco.umontreal.ca/liste_personnel/carrasco/index.htm

Guy Tchuente

University of Kent ( email )

Keynes College, University of Kent
Canterbury, Kent CT2 7NP
United Kingdom

HOME PAGE: http://https://www.kent.ac.uk/economics/staff/profiles/guy-tchuente.html

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
68
Abstract Views
457
rank
448,853
PlumX Metrics