Many Instruments and/or Regressors: A Friendly Guide

Journal of Economic Surveys, 2018

46 Pages Posted: 19 Dec 2018

Multiple version iconThere are 2 versions of this paper

Date Written: August 2018

Abstract

This article surveys the state of the art in the econometrics of regression models with many instruments or many regressors based on alternative – namely, dimension – asymptotics. We list critical results of dimension asymptotics that lead to better approximations of properties of familiar and alternative estimators and tests when the instruments and/or regressors are numerous. Then we consider the problem of estimation and inference in the basic linear instrumental variables regression setup with many strong instruments. We describe the failures of conventional estimation and inference, as well as alternative tools that restore consistency and validity. We then add various other features to the basic model such as heteroskedasticity, instrument weakness, etc., in each case providing a review of the existing tools for proper estimation and inference. Subsequently, we consider a related but different problem of estimation and testing in a linear mean regression with many regressors. We also describe various extensions and connections to other settings, such as panel data models, spatial models, time series models, and so on. Finally, we provide practical guidance regarding which tools are most suitable to use in various situations when many instruments and/or regressors turn out to be an issue.

Keywords: linear regression, instrumental variables, alternative asymptotic theory, dimension asymptotics, many instruments, weak instruments, many regressors

JEL Classification: C12, C13, C18, C21, C26, C55

Suggested Citation

Anatolyev, Stanislav, Many Instruments and/or Regressors: A Friendly Guide (August 2018). Journal of Economic Surveys, 2018, Available at SSRN: https://ssrn.com/abstract=3294223

Stanislav Anatolyev (Contact Author)

New Economic School ( email )

Skolkovskoe shosse, 45
Moscow, 121353
Russia

CERGE-EI ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

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