Inference with Weak Instruments

Donald W. K. Andrews () and James H. Stock

No 1530, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: This paper reviews recent developments in methods for dealing with weak instruments (IVs) in IV regression models. The focus is more on tests (and confidence intervals derived from tests) than estimators. The paper also presents new testing results under "many weak IV asymptotics," which are relevant when the number of IVs is large and the coefficients on the IVs are relatively small. Asymptotic power envelopes for invariant tests are established. Power comparisons of the conditional likelihood ratio (CLR), Anderson-Rubin, and Lagrange multiplier tests are made. Numerical results show that the CLR test is on the asymptotic power envelope. This holds no matter what the relative magnitude of the IV strength to the number of IVs.

Keywords: Conditional likelihood ratio test; instrumental variables; many instrumental variables; power envelope; weak instruments (search for similar items in EconPapers)
JEL-codes: C12 C30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: Written
Note: CFP 1249.
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Published in R. Blundell, W.K. Newey, and T. Persson, eds., Advances in Economics and Econometrics, Theory and Applications: Ninth World Congress of the Econometric Society, Vol. III, Cambridge University Press, 2007, Ch. 6

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Working Paper: Inference with Weak Instruments (2005)
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