Averaged Instrumental Variables Estimators

Yoonseok Lee and Yu Zhou
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Yu Zhou: School of Economics, Fudan University, 600 Guoquan Road, Shanghai 200433

No 180, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: We develop averaged instrumental variables estimators as a way to deal with many weak instruments. We propose a weighted average of the preliminary k-class estimators, where each estimator is obtained using different subsets of the available instrumental variables. The averaged estimators are shown to be consistent and to satisfy asymptotic normality. Furthermore, its approximate mean squared error reveals that using a small number of instruments for each preliminary k-class estimator reduces the finite sample bias, while averaging prevents the variance from inflating. Monte Carlo simulations find that the averaged estimators compare favorably with alternative instrumental-variable-selection approaches when the strength levels of individual IV are similar with each other.

Keywords: Averaged estimator; many weak instruments; class estimator (search for similar items in EconPapers)
JEL-codes: C26 C36 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-05
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (1)

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