Are “Nearly Exogenous Instruments” reliable?

Are “Nearly Exogenous Instruments” reliable?

We show that when instruments are nearly exogenous, the two stage least squares t-statistic unpredictably over-rejects or under-rejects the null hypothesis that the endogenous regressor is insignificant and Anderson–Rubin test over-rejects the null. We prove that in the limit these tests are no long...

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Veröffentlicht in:Economics letters 2008-10, Vol.101 (1), p.20-23
Hauptverfasser: Berkowitz, Daniel, Caner, Mehmet, Fang, Ying
Format: Artikel
Sprache:eng
Schlagworte:
C30
C30 Valid instruments Weak identification Inference
Econometrics
Inference
Significance tests
Statistics
Valid instruments
Weak identification
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Zusammenfassung:We show that when instruments are nearly exogenous, the two stage least squares t-statistic unpredictably over-rejects or under-rejects the null hypothesis that the endogenous regressor is insignificant and Anderson–Rubin test over-rejects the null. We prove that in the limit these tests are no longer nuisance parameter free.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2008.03.020