The Distribution of the Instrumental Variables Estimator and Its t-Ratio When the Instrument Is a Poor One

Charles Nelson and Richard Startz

The Journal of Business, 1990, vol. 63, issue 1, S125-40

Abstract: Instrumental variables estimation is used when there is reason to suspect feedback from a dependent variable to the explanatory variable, but the results will tend to be highly misleading if the instrument is a poor one. In this case, the distribution of the estimated coefficient is concentrated around a value that is related to the amount of feedback rather than to the true coefficient. When the true coefficient is zero, the instrumental variables coefficient will nevertheless appear to be highly significant, and this effect increases with the amount of feedback. Thus, it is in the cases where least squares is a poor estimator that instrumental variables with a poor instrument will be even worse. Some guidelines for practice are suggested. Copyright 1990 by the University of Chicago.

Date: 1990
References: Add references at CitEc
Citations: View citations in EconPapers (255)

Downloads: (external link)
http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/00219398/.61-.67 full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
Working Paper: THE DISTRIBUTION OF THE INSTRUMENTAL VARIABLES ESTIMATOR AND ITS T-RATIO WHEN THE INSTRUMENT IS A POOR ONE (1988)
Working Paper: The Distribution of the Instrumental Variables Estimator and Its t-RatioWhen the Instrument is a Poor One (1988)
Working Paper: THE DISTRIBUTION OF THE INSTRUMENTAL VARIABLES ESTIMATOR AND ITS T-RATIO WHEN THE INSTRUMENT IS A POOR ONE (1988)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:63:y:1990:i:1:p:s125-40

Access Statistics for this article

More articles in The Journal of Business from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().