Valid t-Ratio Inference for IV

David S. Lee, Justin McCrary, Marcelo Moreira and Jack Porter

American Economic Review, 2022, vol. 112, issue 10, 3260-90

Abstract: In the single-IV model, researchers commonly rely on t-ratio-based inference, even though the literature has quantified its potentially severe large-sample distortions. Building on Stock and Yogo (2005), we introduce the tF critical value function, leading to a standard error adjustment that is a smooth function of the first-stage F-statistic. For one-quarter of specifications in 61 AER papers, corrected standard errors are at least 49 and 136 percent larger than conventional 2SLS standard errors at the 5 percent and 1 percent significance levels, respectively. tF confidence intervals have shorter expected length than those of Anderson and Rubin (1949), whenever both are bounded.

JEL-codes: C13 C26 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (81)

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Related works:
Working Paper: Valid t-ratio Inference for IV (2021)
Working Paper: Valid t-ratio Inference for IV (2021)
Working Paper: Valid t-ratio Inference for IV (2020)
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DOI: 10.1257/aer.20211063

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