Identification and Inference in a Simultaneous Equation Under Alternative Information Sets and Sampling Schemes

Jan Kiviet

No 1207, Economic Growth Centre Working Paper Series from Nanyang Technological University, School of Social Sciences, Economic Growth Centre

Abstract: In simple static linear simultaneous equation models the empirical distributions of IV and OLS are examined under alternative sampling schemes and compared with their first-order asymptotic approximations. We demonstrate that the limiting distribution of consistent IV is not affected by conditioning on exogenous regressors, whereas that of inconsistent OLS is. The OLS asymptotic and simulated actual variances are shown to diminish by extending the set of exogenous variables kept fixed in sampling, whereas such an extension disrupts the distribution of IV and deteriorates the accuracy of its standard asymptotic approximation, not only when instruments are weak. Against this background the consequences for the identification of parameters of interest are examined for a set- ting in which (in practice often incredible) assumptions regarding the zero correlation between instruments and disturbances are replaced by (generally more credible) inter- val assumptions on the correlation between endogenous regressor and disturbance. This yields OLS-based modified confidence intervals, which are usually conservative. Often they compare favorably with IV-based intervals and accentuate their frailty.

Keywords: partial identification; weak instruments; (un)restrained repeated sampling; (un)conditional (limiting) distributions; credible robust inference (search for similar items in EconPapers)
JEL-codes: C12 C13 C15 C26 J31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2012-07
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Identification and inference in a simultaneous equation under alternative information sets and sampling schemes (2013)
Working Paper: Identification and Inference in a Simultaneous Equation under Alternative Information Sets and Sampling Schemes (2012)
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