Exactly Distribution-free Inference in Instrumental Variables Regression with Possibly Weak Instruments

Donald W. K. Andrews () and Vadim Marmer ()

No 1501, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: This paper introduces a rank-based test for the instrumental variables regression model that dominates the Anderson-Rubin test in terms of finite sample size and asymptotic power in certain circumstances. The test has correct size for any distribution of the errors with weak or strong instruments. The test has noticeably higher power than the Anderson-Rubin test when the error distribution has thick tails and comparable power otherwise. Like the Anderson-Rubin test, the rank tests considered here perform best, relative to other available tests, in exactly-identified models.

Keywords: Aligned ranks; Anderson-Rubin statistic; categorical covariates; exact size; normal scores; rank test; weak instruments; Wilcoxon scores (search for similar items in EconPapers)
JEL-codes: C13 C30 (search for similar items in EconPapers)
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Date: Written
Note: CFP 1253.
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Published in Journal of Econometrics (2008), 42(1): 183-200

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Journal Article: Exactly distribution-free inference in instrumental variables regression with possibly weak instruments (2008)
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