The Zero-Information-Limit Condition and Spurious Inference in Weakly Identified Models

Charles Nelson and Richard Startz

Working Papers from University of Washington, Department of Economics

Abstract: The fact that weak instruments lead to spurious inference is now widely recognized. In this paper we ask whether spurious inference occurs more generally in weakly identified models. To distinguish between models where spurious inference will occur from those where it does not, we introduce the Zero-Information-Limit-Condition (ZILC). When ZILC holds, the information or precision of parameter estimates is overestimated. We discuss how ZILC applies to models encountered in practice and show that spurious inference does occur when ZILC holds.

Date: 2004-02
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Forthcoming in Journal of Econometrics

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Related works:
Journal Article: The zero-information-limit condition and spurious inference in weakly identified models (2007)
Working Paper: The Zero-Information-Limit-Condition and Spurious Inference in Weakly Identified Models (2007)
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