Approximating the Distribution of the Instrumental Variables Estimator when the Concentration Parameter is Small

Donald Poskitt and Christopher Skeels

No 19/04, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This paper presents a new approximation to the exact sampling distribution of the instrumental variables estimator in simultaneous equations models. It differs from many of the approximations currently available, Edgeworth expansions for example, in that it is specifically designed to work well when the concentration parameter is small. The approximation is remarkable for the simplicity of its final form, for its accuracy and for its ability to capture those stylized facts that characterize lack of identification and weak instrument scenarios. The development leading to the approximation is also novel in that it introduces techniques of some independent interest not seen in this literature hitherto.

Keywords: concentration parameter; IV estimator; simultaneous equations model; t approximation; weak instruments. (search for similar items in EconPapers)
JEL-codes: C16 C30 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-10
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (5)

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