A Robust Test for Weak Instruments

José Luis Montiel Olea and Carolin Pflueger

Journal of Business & Economic Statistics, 2013, vol. 31, issue 3, 358-369

Abstract: We develop a test for weak instruments in linear instrumental variables regression that is robust to heteroscedasticity, autocorrelation, and clustering. Our test statistic is a scaled nonrobust first-stage F statistic. Instruments are considered weak when the two-stage least squares or the limited information maximum likelihood Nagar bias is large relative to a benchmark. We apply our procedures to the estimation of the elasticity of intertemporal substitution, where our test cannot reject the null of weak instruments in a larger number of countries than the test proposed by Stock and Yogo in 2005. Supplementary materials for this article are available online.

Date: 2013
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DOI: 10.1080/00401706.2013.806694

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