Optimal Instruments in Time Series: A Survey

Abstract

This article surveys estimation in stationary time series models using the approach of optimal instrumentation. We review tools that allow construction and implementation of optimal instrumental variables estimators in various circumstances - in single- and multi-period models, in the absence and presence of conditional heteroskedasticity, by considering linear and nonlinear instruments. We also discuss issues adjacent to the theme of optimal instruments. The article is directed primarily towards practitioners, but also may be found useful by econometric theorists and teachers of graduate econometrics.

Keywords: Instrumental variables estimation, Moment restrictions, Optimal instrument, Efficiency bounds, Stationary time series

JEL Classification: C10, C13, C22