Inference with Weak Instruments

60 Pages Posted: 19 Oct 2005 Last revised: 10 Nov 2024

See all articles by James H. Stock

James H. Stock

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Donald W. K. Andrews

Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: August 2005

Abstract

This paper reviews recent developments in methods for dealing with weak instruments (IVs) in IV regression models. The focus is more on tests and confidence intervals derived from tests than on estimators. The paper also presents new testing results under "many weak IV asymptotics," which are relevant when the number of IVs is large and the coefficients on the IVs are relatively small. Asymptotic power envelopes for invariant tests are established. Power comparisons of the conditional likelihood ratio (CLR), Anderson- Rubin, and Lagrange multiplier tests are made. Numerical results show that the CLR test is on the asymptotic power envelope. This holds no matter what the relative magnitude of the IV strength to the number of IVs.

Suggested Citation

Stock, James H. and Andrews, Donald W. K., Inference with Weak Instruments (August 2005). NBER Working Paper No. t0313, Available at SSRN: https://ssrn.com/abstract=795264

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