Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87356
Authors: 
Kiviet, Jan F.
Year of Publication: 
2012
Series/Report no.: 
Tinbergen Institute Discussion Paper 12-128/III
Abstract: 
In simple static linear simultaneous equation models the empirical distributions of IV and OLS are examined under alternative sampling schemes and compared with their first-order asymptotic approximations. We demonstrate that the limiting distribution of consistent IV is not affected by conditioning on exogenous regressors, whereas that of inconsistent OLS is. The OLS asymptotic and simulated actual variances are shown to diminish by extending the set of exogenous variables kept fixed in sampling, whereas such an extension disrupts the distribution of IV and deteriorates the accuracy of its standard asymptotic approximation, not only when instruments are weak. Against this background the consequences for the identification of parameters of interest are examined for a setting in which (in practice often incredible) assumptions regarding the zero correlation between instruments and disturbances are replaced by (generally more credible) interval assumptions on the correlation between endogenous regressor and disturbance. This yields OLS-based modified confidence intervals, which are usually conservative. Often they compare favorably with IV-based intervals and accentuate their frailty.
Subjects: 
partial identification
weak instruments
(un)restrained repeated sampling
(un)conditional (limiting) distributions
credible robust inference
JEL: 
C12
C13
C15
C26
J31
Document Type: 
Working Paper

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