Constrained k-class Estimators in the Presence of Weak Instruments

Emma Iglesias

Studies in Nonlinear Dynamics & Econometrics, 2011, vol. 15, issue 4, 13

Abstract: In this paper, we show how we can apply the existing theory when a parameter is on a boundary (see Andrews (1999, 2000) and Iglesias and Linton (2007)) in the context of weak instruments. When we have a priori knowledge of the signs of the relationships between the instruments and the endogenous variables, we can construct constrained k-class estimators (a special case is a constrained 2SLS estimator), where the asymptotic theory in the presence of weak instruments changes in relation to the traditional weak-instrument asymptotics of the unconstrained k-class estimators of Staiger and Stock (1997). We show theoretically and in a simulation study the advantages that we have by constraining the estimator.

Date: 2011
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DOI: 10.2202/1558-3708.1816

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