Annual Review of Economics· 2019Q1· Review
Weak Instruments in Instrumental Variables Regression: Theory and Practice
- 834citations
- Q1SCImago
- 2019year
Short summary
Weak instruments in IV regression undermine standard estimation and inference, a problem that persists in practice despite existing literature, especially with non-homoskedastic data.
AI-generated from the title and abstract; the full text is not read.
Key points
- Weak instruments invalidate standard IV estimation and inference.
- Existing methods for weak instruments often assume independent and homoskedastic data.
- This review emphasizes results for non-homoskedastic data (heteroskedastic, serially correlated, or clustered).
- Analysis of recent empirical studies shows weak instruments are still a common practical issue.
AI-generated from the title and abstract; the full text is not read.
Abstract
When instruments are weakly correlated with endogenous regressors, conventional methods for instrumental variables (IV) estimation and inference become unreliable. A large literature in econometrics has developed procedures for detecting weak instruments and constructing robust confidence sets, but many of the results in this literature are limited to settings with independent and homoskedastic data, while data encountered in practice frequently violate these assumptions. We review the literature on weak instruments in linear IV regression with an emphasis on results for nonhomoskedastic (heteroskedastic, serially correlated, or clustered) data. To assess the practical importance of weak instruments, we also report tabulations and simulations based on a survey of papers published in the American Economic Review from 2014 to 2018 that use IV. These results suggest that weak instruments remain an important issue for empirical practice, and that there are simple steps that researchers can take to better handle weak instruments in applications.
The authors' abstract, as published at the source. Annual Review of Economics, 2019 · DOI ↗
Continue with a free account
Ask the paper: 3 free questions a day about this paper; save it, get its citation, new summaries every day for your field. Takeaways are Premium.
Continue free on the webSign in with Google or Apple; no card needed. You come back to this paper.
On your phone:
Field: General Economics, Econometrics and Finance
General Economics, Econometrics and FinanceEconomics, Econometrics and Finance