Feasible IV Regression without Excluded Instruments

Emmanuel Tsyawo

Papers from arXiv.org

Abstract: The relevance condition of Integrated Conditional Moment (ICM) estimators is significantly weaker than the conventional IV's in at least two respects: (1) consistent estimation without excluded instruments is possible, provided endogenous covariates are non-linearly mean-dependent on exogenous covariates, and (2) endogenous covariates may be uncorrelated with but mean-dependent on instruments. These remarkable properties notwithstanding, multiplicative-kernel ICM estimators suffer diminished identification strength, large bias, and severe size distortions even for a moderately sized instrument vector. This paper proposes a computationally fast linear ICM estimator that better preserves identification strength in the presence of multiple instruments and a test of the ICM relevance condition. Monte Carlo simulations demonstrate a considerably better size control in the presence of multiple instruments and a favourably competitive performance in general. An empirical example illustrates the practical usefulness of the estimator, where estimates remain plausible when no excluded instrument is used.

Date: 2021-03, Revised 2022-11
New Economics Papers: this item is included in nep-ecm
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http://arxiv.org/pdf/2103.09621 Latest version (application/pdf)

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Journal Article: Feasible IV regression without excluded instruments (2023)
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