Granular Instrumental Variables in Large Panels: Identification and Inference Across Strong, Nearly Weak, and Weak GIV

Gokul Gopalan Ramachandran

Papers from arXiv.org

Abstract: I develop asymptotic theory for Granular Instrumental Variables (GIV) in large panels with both $N$ and $T$ growing. The granular instrument is constructed from individual shocks that must be estimated from the panel. I show that this estimation has a first-order effect on the asymptotic variance of the GIV estimator. Existing methods do not account for this effect, leading to incorrect standard errors and invalid inference. I derive corrected standard errors that deliver valid inference. I also characterize how instrument strength changes as $N$ grows. This yields strong, nearly-weak, and weak regimes for GIV. In particular, I identify a previously uncharacterised nearly-weak regime in which the instrument vanishes asymptotically, but GIV remains valid. If $T$ grows sufficiently fast relative to $N$, the estimator remains consistent and asymptotically normal at a rate slower than $\sqrt{T}$. When $N$ and $T$ grow proportionally, the estimator instead exhibits standard weak-instrument behavior. I apply the theory to estimate short-run demand and supply elasticities for copper, natural gas, and crude oil. Across the six elasticities, accounting for instrument estimation changes standard errors by up to a fifth.

Date: 2026-07, Revised 2026-09
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2607.02095 Latest version (application/pdf)

Related works:
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:arx:papers:2607.02095

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().