Efficient estimation with many weak instruments using regularization techniques

Guy Tchuente and Marine Carrasco

CIRANO Working Papers from CIRANO

Abstract: The problem of weak instruments is due to a very small concentration parameter. To boost the concentration parameter, we propose to increase the number of instruments to a large number or even up to a continuum. However, in finite samples, the inclusion of an excessive number of moments may be harmful. To address this issue, we use regularization techniques as in Carrasco (2012) and Carrasco and Tchuente (2013). We show that normalized regularized 2SLS and LIML are consistent and asymptotically normally distributed. Moreover, their asymptotic variances reach the semiparametric efficiency bound unlike most competing estimators. Our simulations show that the leading regularized estimators (LF and T of LIML) work very well (is nearly median unbiased) even in the case of relatively weak instruments.

Keywords: Many weak instruments; LIML; 2SLS; regularization methods (search for similar items in EconPapers)
Date: 2013-07-01
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (1)

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https://cirano.qc.ca/files/publications/2013s-21.pdf

Related works:
Journal Article: Efficient Estimation with Many Weak Instruments Using Regularization Techniques (2016)
Working Paper: Efficient estimation with many weak instruments using regularization techniques (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cir:cirwor:2013s-21

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