Rank Tests for Instrumental Variables Regression with Weak Instruments

Donald W. K. Andrews () and Gustavo Soares
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Gustavo Soares: Department of Economics, Yale University, http://www.econ.yale.edu/

No 1564, Cowles Foundation Discussion Papers from Cowles Foundation, Yale University

Abstract: This paper considers tests in an instrumental variables (IVs) regression model with IVs that may be weak. Tests that have near-optimal asymptotic power properties with Gaussian errors for weak and strong IVs have been determined in Andrews, Moreira, and Stock (2006a). In this paper, we seek tests that have near-optimal asymptotic power with Gaussian errors and improved power with non-Gaussian errors relative to existing tests. Tests with such properties are obtained by introducing rank tests that are analogous to the conditional likelihood ratio test of Moreira (2003). We also introduce a rank test that is analogous to the Lagrange multiplier test of Kleibergen (2002) and Moreira (2001).

Keywords: Asymptotically similar tests; Conditional likelihood ratio test; Instrumental variables regression; Lagrange multiplier test; Power of test; Rank tests; Thick-tailed distribution; 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 1250.
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Published in Econometric Theory (2007), 23(6): 1033-1082

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Journal Article: RANK TESTS FOR INSTRUMENTAL VARIABLES REGRESSION WITH WEAK INSTRUMENTS (2007)
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