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Judging Instrument Relevance in Instrumental Variables Estimation

Alastair Hall, Glenn Rudebusch () and David Wilcox ()

International Economic Review, 1996, vol. 37, issue 2, 283-98

Abstract: Recent research has emphasized the poor finite-sample performance of the instrumental variables estimator when the instruments are weakly correlated with the regressors. The authors show how the canonical correlations between regressors and instruments can provide a measure of instrument relevance in the general multiple-instrument-multiple-regressor case. However, their simulation results indicate that any such relevance measure probably has little practical merit, as its use may actually exacerbate the poor finite-sample properties of the instrumental variables estimator. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1996
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Working Paper: Judging instrument relevance in instrumental variables estimation (1994)
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Handle: RePEc:ier:iecrev:v:37:y:1996:i:2:p:283-98