One Instrument to Rule Them All: The Bias and Coverage of Just-ID IV /
We revisit the finite-sample behavior of just-identified instrumental variables (IV) estimators, arguing that in most microeconometric applications, just-identified IV bias is negligible and the usual inference strategies likely reliable. Three widely-cited applications are used to explain why this...
Gespeichert in:
- 1. Verfasser:
- Körperschaft:
- Weitere Verfasser:
- Format:
- Elektronisch E-Book
- Sprache:
- Englisch
- Veröffentlicht:
-
Cambridge, Mass.
National Bureau of Economic Research
2021.
- Zusammenfassung:
-
We revisit the finite-sample behavior of just-identified instrumental variables (IV) estimators, arguing that in most microeconometric applications, just-identified IV bias is negligible and the usual inference strategies likely reliable. Three widely-cited applications are used to explain why this is so. We then consider pretesting strategies of the form t1 > c, where t1 is the first-stage t-statistic, and the first-stage sign is given. Although pervasive in empirical practice, pretesting on the first-stage F-statistic exacerbates bias and distorts inference. We show, however, that median bias is both minimized and roughly halved by setting c = 0, that is by screening on the sign of the estimated first stage. This bias reduction is a free lunch: conventional confidence interval coverage is unchanged by screening on the estimated first-stage sign. To the extent that IV analysts sign-screen already, these results strengthen the case for a sanguine view of the finite-sample behavior of just-ID IV.
- Umfang:
- 1 online resource: illustrations (black and white);
- Anmerkungen:
- October 2021.
- Schlagworte: