Quantile Uncorrelation and Instrumental Regressions

Komarova Tatiana (), Severini Thomas A. () and Tamer Elie T. ()
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Komarova Tatiana: London School of Economics and Political Science
Severini Thomas A.: Northwestern University
Tamer Elie T.: Northwestern University

Journal of Econometric Methods, 2012, vol. 1, issue 1, 2-14

Abstract: We introduce a notion of median uncorrelation that is a natural extension of mean (linear) uncorrelation. A scalar random variable Y is median uncorrelated with a k-dimensional random vector X if and only if the slope from an LAD regression of Y on X is zero. Using this simple definition, we characterize properties of median uncorrelated random variables, and introduce a notion of multivariate median uncorrelation. We provide measures of median uncorrelation that are similar to the linear correlation coefficient and the coefficient of determination. We also extend this median uncorrelation to other loss functions. As two stage least squares exploits mean uncorrelation between an instrument vector and the error to derive consistent estimators for parameters in linear regressions with endogenous regressors, the main result of this paper shows how a median uncorrelation assumption between an instrument vector and the error can similarly be used to derive consistent estimators in these linear models with endogenous regressors. We also show how median uncorrelation can be used in linear panel models with quantile restrictions and in linear models with measurement errors.

Keywords: quantile regression; endogeneity; instrumental variables; correlation. (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1515/2156-6674.1001

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