The Zero-Information-Limit Condition and Spurious Inference in Weakly Identified Models

19 Pages Posted: 9 Feb 2004

Date Written: February 2, 2004

Abstract

The fact that weak instruments lead to spurious inference is now widely recognized. In this paper we ask whether spurious inference occurs more generally in weakly identified models. To distinguish between models where spurious inference will occur from those where it does not, we introduce the Zero-Information-Limit-Condition (ZILC). When ZILC holds, the information or precision of parameter estimates is overestimated. We discuss how ZILC applies to models encountered in practice and show that spurious inference does occur when ZILC holds.

Keywords: Weak identification, hypothesis testing

JEL Classification: C120, C220, C300

Suggested Citation

Nelson, Charles R. and Startz, Richard, The Zero-Information-Limit Condition and Spurious Inference in Weakly Identified Models (February 2, 2004). Available at SSRN: https://ssrn.com/abstract=497282 or http://dx.doi.org/10.2139/ssrn.497282

Charles R. Nelson

Dept of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Richard Startz (Contact Author)

UCSB ( email )

Department of Economics
University of California
Santa Barbara, CA 93106-9210
United States
805-893-2895 (Phone)

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