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Performance of conditional Wald tests in IV regression with weak instruments by Donald W.K. Andrews; Marcelo J. Moreira; James H. Stock is a Economics, Econometrics and Finance article available to read on EtoBox.

What is Performance of conditional Wald tests in IV regression with weak instruments about?

We compare the powers of five tests of the coefficient on a single endogenous regressor in instrumental variables regression. Following Moreira [2003, A conditional likelihood ratio test for structural models. Econometrica 71, 1027-1048], all tests are implemented using critical values that depend on a statistic which is sufficient under the null hypothesis for the (unknown) concentration parameter, so these conditional tests are asymptotically valid under weak instrument asymptotics. Four of the tests are based on k-class Wald statistics (two-stage least squares, LIML, Fuller's [Some properties of a modification of the limited information estimator. Econometrica 45, 939-953], and bias-adjusted TSLS); the fifth is Moreira's (2003) conditional likelihood ratio (CLR) test. The heretofore unstudied conditional Wald (CW) tests are found to perform poorly, compared to the CLR test: in many cases, the CW tests have almost no power against a wide range of alternatives. Our analysis is facilitated by a new algorithm, presented here, for the computation of the asymptotic conditional p-value of the CLR test.

Who reads Performance of conditional Wald tests in IV regression with weak instruments?

Author

Donald W.K. Andrews; Marcelo J. Moreira; James H. Stock

Publisher

Elsevier Science; Elsevier ; Elsevier BV (ISSN 0304-4076)

Published

2007

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)