Finite Sample BIAS Corrected IV Estimation for Weak and Many Instruments

Matthew Harding, Jerry Hausman and Christopher J. Palmer

A chapter in Essays in Honor of Aman Ullah, 2016, vol. 36, pp 245-273 from Emerald Group Publishing Limited

Abstract: This paper considers the finite-sample distribution of the 2SLS estimator and derives bounds on its exact bias in the presence of weak and/or many instruments. We then contrast the behavior of the exact bias expressions and the asymptotic expansions currently popular in the literature, including a consideration of the no-moment problem exhibited by many Nagar-type estimators. After deriving a finite-sample unbiasedk-class estimator, we introduce a double-k-class estimator based on Nagar (1962) that dominatesk-class estimators (including 2SLS), especially in the cases of weak and/or many instruments. We demonstrate these properties in Monte Carlo simulations showing that our preferred estimators outperform Fuller (1977) estimators in terms of mean bias and MSE.

Keywords: Instrumental variables; weak and many instruments; finite sample; k-class estimators; C31; C13; C15 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-905320160000036016

DOI: 10.1108/S0731-905320160000036016

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