Inference for the Linear IV Model Ridge Estimator Using Training and Test Samples

Fallaw Sowell and Nandana Sengupta
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Nandana Sengupta: School of Public Policy, Indian Institute of Technology Delhi, New Delhi 110016, India

Stats, 2021, vol. 4, issue 3, 1-20

Abstract: The asymptotic distribution is presented for the linear instrumental variables model estimated with a ridge penalty and a prior where the tuning parameter is selected with a holdout sample. The structural parameters and the tuning parameter are estimated jointly by method of moments. A chi-squared statistic permits confidence regions for the structural parameters. The form of the asymptotic distribution provides insights on the optimal way to perform the split between the training and test sample. Results for the linear regression estimated by ridge regression are presented as a special case.

Keywords: ridge regression; holdout sample; method of moments; asymptotic distribution; confidence region (search for similar items in EconPapers)
JEL-codes: C1 C10 C11 C14 C15 C16 (search for similar items in EconPapers)
Date: 2021
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