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Approximating the Distribution of the Instrumental Variables Estimator when the Concentration Parameter is Small

Poskitta, D.S. and Skeels, C.L. (2007) Approximating the Distribution of the Instrumental Variables Estimator when the Concentration Parameter is Small. Journal of Econometrics, 139 (1). pp. 217-236. ISSN 0304-4076

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Abstract

This paper presents a new approximation to the exact sampling distribution of the instrumental variables estimator in simultaneous equations models. It differs from many of the approximations currently available, Edgeworth expansions for example, in that it is specifically designed to work well when the concentration parameter is small. The approximation is remarkable in that simultaneously: (i) it has an extremely simple final form; (ii) in situations for which it is designed it is typically much more accurate than is the large sample normal approximation; and (iii) it is able to capture most of those stylized facts that characterize lack of identification and weak instrument scenarios. The development leading to the approximation is also novel in that it introduces techniques of some independent interest not seen in this literature hitherto.

Item Type: Article
Keywords: Concentration parameter; IV estimator; Two-stage least squares; Simultaneous equations model; t approximation; Weak instruments
Academic Units: The University of York > Economics and Related Studies (York)
Depositing User: York RAE Import
Date Deposited: 29 May 2009 10:04
Last Modified: 29 May 2009 10:04
Published Version: http://dx.doi.org/10.1016/j.jeconom.2006.06.011
Status: Published
Publisher: Elsevier Science B.V., Amsterdam.
Identification Number: 10.1016/j.jeconom.2006.06.011
URI: http://eprints.whiterose.ac.uk/id/eprint/6557

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