Finite sample evidence of IV estimators under weak instruments

Alfonso Flores-Lagunes ()

Journal of Applied Econometrics, 2007, vol. 22, issue 3, 677-694

Abstract: We present finite sample evidence on different IV estimators available for linear models under weak instruments; explore the application of the bootstrap as a bias reduction technique to attenuate their finite sample bias; and employ three empirical applications to illustrate and provide insights into the relative performance of the estimators in practice. Our evidence indicates that the random-effects quasi-maximum likelihood estimator outperforms alternative estimators in terms of median point estimates and coverage rates, followed by the bootstrap bias-corrected version of LIML and LIML. However, our results also confirm the difficulty of obtaining reliable point estimates in models with weak identification and moderate-size samples. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2007
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DOI: 10.1002/jae.916

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