Valid t-ratio Inference for IV

David S. Lee, Justin McCrary, Marcelo Moreira and Jack R. Porter

No 29124, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In the single-IV model, researchers commonly rely on t-ratio-based inference, even though the literature has quantified its potentially severe large-sample distortions. Building on Stock and Yogo (2005), we introduce the tF critical value function, leading to a standard error adjustment that is a smooth function of the first-stage F-statistic. For one-quarter of specifications in 61 AER papers, corrected standard errors are at least 49 and 136 percent larger than conventional 2SLS standard errors at the 5-percent and 1-percent significance levels, respectively. tF confidence intervals have shorter expected length than those of Anderson and Rubin (1949), whenever both are bounded.

JEL-codes: C01 C1 C26 C36 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-isf and nep-ore
Note: CF CH DEV ED EH IO LE LS PE
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Citations: View citations in EconPapers (28)

Published as David S. Lee & Justin McCrary & Marcelo J. Moreira & Jack Porter, 2022. "Valid -ratio Inference for IV," American Economic Review, vol 112(10), pages 3260-3290.

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Related works:
Journal Article: Valid t-Ratio Inference for IV (2022)
Working Paper: Valid t-ratio Inference for IV (2021)
Working Paper: Valid t-ratio Inference for IV (2020)
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