Finite Sample BIAS Corrected IV Estimation for Weak and Many Instruments [chapter]

Matthew Harding, Jerry Hausman, Christopher J. Palmer
2016 Advances in Econometrics  
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)
more » ... 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. JEL: C31, C13, C15 Keywords: instrumental variables, weak and many instruments, finite sample, k-class estimators * We are grateful to Tim Armstrong for providing excellent research assistance. Thanks to Plamen Koev for sharing his code for the computation of hypergeometric functions.
doi:10.1108/s0731-905320160000036016 fatcat:dposx34xnba3fpcq4onhjgj6hm