Karthik Rajkumar
arXiv 18 Apr 2019 · Econometrics
arXiv:1904.08580 · PDF · DOI · OpenAlex · Extracted main text
In this paper, I show that classic two-stage least squares (2SLS) estimates are highly unstable with weak instruments. I propose a ridge estimator (ridge IV) and show that it is asymptotically normal even with weak instruments, whereas 2SLS is severely distorted and un-bounded. I motivate the ridge IV estimator as a convex optimization problem with a GMM objective function and an L2 penalty. I show that ridge IV leads to sizable mean squared error reductions theoretically and validate these results in a simulation study inspired by data designs of papers published in the American Economic Review.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Andrews, I., J. Stock, and L. Sun (2018) Weak instruments in iv regression: Theory and practice, Tech | 0.511 | 2 | 1 | 100% |
| 2 | Young, A (2018) Consistency without inference: Instrumental variables in practical application | 0.511 | 2 | 1 | 100% |
| 3 | Anderson, T. W., H. Rubin, et al (1949) Estimation of the parameters of a single equation in a complete system of stochastic equations | 0.405 | 1 | 1 | 100% |
| 4 | Andrews, I. and T. B. Armstrong (2017) Unbiased instrumental variables estimation under known first-stage sign | 0.405 | 1 | 1 | 100% |
| 5 | Hausman, J. A (1978) Specification tests in econometrics | 0.405 | 1 | 1 | 100% |
| 6 | Hirano, K. and J. R. Porter (2015) Location properties of point estimators in linear instrumental variables and related models | 0.405 | 1 | 1 | 100% |
| 7 | Hornung, E (2014) Immigration and the diffusion of technology: The Huguenot diaspora in Prussia | 0.405 | 1 | 1 | 100% |
| 8 | Knight, K., W. Fu, et al (2000) Asymptotics for lasso-type estimators | 0.405 | 1 | 1 | 100% |
| 9 | Olea, J. L. M. and C. Pflueger (2013) A robust test for weak instruments | 0.405 | 1 | 1 | 100% |
| 10 | Staiger, D. and J. H. Stock (1997) Instrumental Variables Regression with Weak Instruments | 0.405 | 1 | 1 | 100% |
Showing the top 10 of 10 scored citations.