EconPapers    
Economics at your fingertips  
 

Optimal Invariant Similar Tests for Instrumental Variables Regression

Donald Andrews (), Marcelo Moreira () and James Stock

No 299, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper considers tests of the parameter on endogenous variables in an instrumental variables regression model. The focus is on determining tests that have certain optimal power properties. We start by considering a model with normally distributed errors and known error covariance matrix. We consider tests that are similar and satisfy a natural rotational invariance condition. We determine tests that maximize weighted average power (WAP) for arbitrary weight functions among invariant similar tests. Such tests include point optimal (PO) invariant similar tests. The results yield the power envelope for invariant similar tests. This allows one to assess and compare the power properties of existing tests, such as the Anderson-Rubin, Lagrange multiplier (LM), and conditional likelihood ratio (CLR) tests, and new optimal WAP and PO invariant similar tests. We find that the CLR test is quite close to being uniformly most powerful invariant among a class of two-sided tests. A new unconditional test, P*, also is found to have this property. For one-sided alternatives, no test achieves the invariant power envelope, but a new test. the one-sided CLR test. is found to be fairly close. The finite sample results of the paper are extended to the case of unknown error covariance matrix and possibly non-normal errors via weak instrument asymptotics. Strong instrument asymptotic results also are provided because we seek tests that perform well under both weak and

JEL-codes: C12 C30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-ets
Date: 2004-08
Note: TWP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

Published as Andrews, Donald W. K., Marcelo J. Moreira and James H. Stock. "Optimal Two-Sided Invariant Similar Tests For Instrumental Variables Regression," Econometrica, 2006, v74(3,May), 715-752.

Downloads: (external link)
http://www.nber.org/papers/t0299.pdf (application/pdf)

Related works:
Working Paper: Optimal Invariant Similar Tests for Instrumental Variables Regression (2004) Downloads
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:nbr:nberte:0299

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/t0299

Access Statistics for this paper

More papers in NBER Technical Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-06-27
Handle: RePEc:nbr:nberte:0299