Harding, Matthew Hausman, Jerry Palmer, Christopher
Year of Publication:
cemmap working paper, Centre for Microdata Methods and Practice CWP41/15
This paper considers the finite sample distribution of the 2SLS estimator and derives bounds on its exact bias in the presence of weak and/or many instruments. We then contrast the behavior of the exact bias expressions and the asymptotic expansions currently popular in the literature, including a consideration of the no-moment problem exhibited by many Nagar-type estimators. After deriving a finite sample unbiased k-class estimator, we introduce a double k-class estimator based on Nagar (1962) that dominates k-class estimators (including 2SLS), especially in the cases of weak and/or many instruments. We demonstrate these properties in Monte Carlo simulations showing that our preferred estimators outperforms Fuller (1977) estimators in terms of mean bias and MSE.
instrumental variables weak and many instruments finite sample k-class estimators