Tikhonov Regularization for Nonparametric Instrumental Variable Estimators
62 Pages Posted: 26 Nov 2006 Last revised: 23 Aug 2011
Date Written: August 2011
We study a Tikhonov Regularized (TiR) estimator of a functional parameter identified by conditional moment restrictions in a linear model with both exogenous and endogenous regressors. The nonparametric instrumental variable estimator is based on a minimum distance principle with penalization by the norms of the parameter and its derivative. After showing its consistency in the Sobolev norm we derive the expression of the asymptotic Mean Integrated Square Error. The convergence rate with optimal value of the regularization parameter is characterized in two examples. We illustrate our theoretical findings and the small sample properties with simulation results. Finally, we provide an empirical application to estimation of an Engel curve, and discuss a data driven selection procedure for the regularization parameter.
Keywords: Nonparametric Estimation, Ill-posed Inverse Problems, Tikhonov Regularization, Endogeneity, Instrumental Variable
JEL Classification: C13, C14, C15, D12
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