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Instrument-free inference under confined regressor endogeneity; derivations and applications

Jan Kiviet ()

No 09/2020, Working Papers from Stellenbosch University, Department of Economics

Abstract: Instead of exploiting instruments and claiming these to be uncorrelated with the disturbances, in an instrument-free approach one may adopt flexible bounds on the correlation between the endogenous regressors and the disturbances. Such an alternative to Two-Stage Least-Squares (TSLS) inference is developed here for general linear models with endogenous possibly time-dependent regressors. Earlier results enabled this just for rather restrictive mesokurtic i.i.d. cross-section data. In three empirical replication studies their underlying exclusion restrictions are shown to be most doubtful. Next, incredible (weak-instrument robust) TSLS inference is replaced by more reliable remarkably narrow instrument-free asymptotically conservative confidence intervals.

Keywords: endogeneity robust least-squares inference; new exclusion restrictions test; replication studies; sensitivity analysis of two-stage least-squares (search for similar items in EconPapers)
JEL-codes: C12 C13 C21 C22 C26 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ore
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https://www.ekon.sun.ac.za/wpapers/2020/wp092020/wp092020.pdf First version, 2020 (application/pdf)

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Working Paper: Instrument-free inference under confined regressor endogeneity; derivations and applications (2019) Downloads
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