Instrumental variables estimation with flexible distribution

Christian Hansen, James McDonald and Whitney Newey

No CWP21/07, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract:

Instrumental variables are often associated with low estimator precision. This paper explores efficiency gains which might be achievable using moment conditions which are nonlinear in the disturbances and are based on flexible parametric families for error distributions. We show that these estimators can achieve the semiparametric efficiency bound when the true error distribution is a member of the parametric family. Monte Carlo simulations demonstrate low efficiency loss in the case of normal error distributions and potentially significant efficiency improvements in the case of thick-tailed and/or skewed error distributions.

Date: 2007-08-20
New Economics Papers: this item is included in nep-ecm
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http://cemmap.ifs.org.uk/wps/cwp2107.pdf (application/pdf)

Related works:
Journal Article: Instrumental Variables Estimation With Flexible Distributions (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ifs:cemmap:21/07

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