kinkyreg: Instrument-free inference for linear regression models with endogenous regressors

Sebastian Kripfganz and Jan Kiviet

Stata Journal, 2021, vol. 21, issue 3, 772-813

Abstract: In models with endogenous regressors, a standard regression approach is to exploit just-identifying or overidentifying orthogonality conditions by using instrumental variables. In just-identified models, the identifying orthogonality as- sumptions cannot be tested without the imposition of other nontestable assump- tions. While formal testing of overidentifying restrictions is possible, its interpre- tation still hinges on the validity of an initial set of untestable just-identifying or- thogonality conditions. We present the kinkyreg command for kinky least-squares inference, which adopts an alternative approach to identification. By exploiting nonorthogonality conditions in the form of bounds on the admissible degree of endogeneity, feasible test procedures can be constructed that do not require in- strumental variables. The kinky least-squares confidence bands can be more infor- mative than confidence intervals obtained from instrumental-variables estimation, especially when the instruments are weak. Moreover, the approach facilitates a sensitivity analysis for standard instrumental-variables inference. In particular, it allows the user to assess the validity of previously untestable just-identifying exclusion restrictions. Further instrument-free tests include linear hypotheses, functional form, heteroskedasticity, and serial correlation tests.

Keywords: kinkyreg; kinkyreg2dta; kinkyreg postestimation; kinky least-squares; instrumental variables; instrument-free tests; endogenous regressors; confidence intervals; sensitivity analysis; specification tests; heteroskedasticity; serial correlation; exclusion restrictions; RESET; relative correlation restriction; Krauth’s lambda; Oster’s delta; graphical inference (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (29)

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DOI: 10.1177/1536867X211045575

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