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Nonparametric Instrumental Variable Estimation in Practice

Michael Cohen (), Philip Shaw () and Tao Chen
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Michael Cohen: New York University

No 111, Food Marketing Policy Center Research Reports from University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy

Abstract: In this paper we examine the nite sample performance of two estimators one developed by Blundell, Chen, and Kristensen (2007) (BCK) and the other by Gagliardini and Scaillet (2007) (TIR). This paper focuses on the generalization and expansion of these estimators to a full nonparametric speci cation with multiple regressors. In relation to the classic weak instruments literature, we provide intuition on the examination of instruments relevance when the structural function is assumed to be unknown. Simulations indicate that both estimators perform quite well in higher dimensions. This research also provides insights on the performance of bootstrapped con dence intervals for both estimators. We document that the BCK estimator's coverage probabilities are near their nominal levels even in small samples as long as the sieve order of expansion is restricted. The coverage probability for the TIR estimator's bootstrapped con dence intervals are near their nominal levels even when the order of sieve approximation is large. These results suggest that in small samples the TIR estimator has a much smaller bias then the BCK estimator but its variance is much larger. We provide two empirical examples. One is the classic wage returns to education example and the other looks at the relationship of corruption and GDP to economic growth. Results here suggests that the impact of corruption on growth depends nonlinearly on a countries level of development.

Keywords: Nonparametric; Instrumental Variables; Information Regularized Estimators (search for similar items in EconPapers)
JEL-codes: C13 C14 C15 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2008-11
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Nonparametric Instrumental Variable Estimation in Practice (2016) Downloads
Working Paper: Nonparametric Instrumental Variable Estimation in Practice (2008) Downloads
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