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On the relevance of weaker instruments

Bertille Antoine () and Eric Renault

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: We study the asymptotic properties of the standard GMM estimator when additional moment restrictions, weaker than the original ones, are available. We provide conditions under which these additional weaker restrictions improve the efficiency of the GMM estimator. To detect ”spurious” identification that may come from invalid moments, we rely on the Hansen J-test that assesses the compatibility between existing restrictions and additional ones. Our simulations reveal that the J-test has good power properties and that its power increases with the weakness of the additional restrictions. Our theoretical characterization of the J-test provides some intuition for why that is.

Keywords: GMM; Weak IV; Redundancy; J-test; Local Misspecification (search for similar items in EconPapers)
JEL-codes: C32 C12 C13 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2014-07-01, Revised 2016-10-10
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