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Specification testing in models with many instruments

Title:

Specification testing in models with many instruments

Anatolyev, Stanislav and Gospodinov, Nikolay (2011) Specification testing in models with many instruments. Econometric Theory, 27 (02). pp. 427-441. ISSN 0266-4666

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Official URL: http://dx.doi.org/10.1017/S0266466610000307

Abstract

This paper studies the asymptotic validity of the Anderson–Rubin (AR) test and the J test for overidentifying restrictions in linear models with many instruments. When the number of instruments increases at the same rate as the sample size, we establish that the conventional AR and J tests are asymptotically incorrect. Some versions of these tests, which are developed for situations with moderately many instruments, are also shown to be asymptotically invalid in this framework. We propose modifications of the AR and J tests that deliver asymptotically correct sizes. Importantly, the corrected tests are robust to the numerosity of the moment conditions in the sense that they are valid for both few and many instruments. The simulation results illustrate the excellent properties of the proposed tests.

Divisions:Concordia University > Faculty of Arts and Science > Economics
Item Type:Article
Refereed:Yes
Authors:Anatolyev, Stanislav and Gospodinov, Nikolay
Journal or Publication:Econometric Theory
Date:2011
Funders:
  • FQRSC
  • SSHRC
ID Code:973670
Deposited By:ANDREA MURRAY
Deposited On:18 Mar 2012 13:05
Last Modified:18 Mar 2012 13:05
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