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RANK TESTS FOR INSTRUMENTAL VARIABLES REGRESSION WITH WEAK INSTRUMENTS

Published online by Cambridge University Press:  06 September 2007

Donald W.K. Andrews  and
Gustavo Soares
Donald W.K. Andrews
Affiliation:
Cowles Foundation for Research in Economics, Yale University
Gustavo Soares
Affiliation:
Yale University
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Abstract

This paper considers tests in an instrumental variable (IVs) regression model with IVs that may be weak. Tests that have near-optimal asymptotic power properties with Gaussian errors for weak and strong IVs have been determined in Andrews, Moreira, and Stock (2006, Econometrica 74, 715–752). In this paper, we seek tests that have near-optimal asymptotic power with Gaussian errors and improved power with non-Gaussian errors relative to existing tests. Tests with such properties are obtained by introducing rank tests that are analogous to the conditional likelihood ratio test of Moreira (2003, Econometrica 71, 1027–1048). We also introduce a rank test that is analogous to the Lagrange multiplier test of Kleibergen (2002, Econometrica 70, 1781–1803) and Moreira (2001, manuscript, University of California, Berkeley).Andrews gratefully acknowledges the research support of the National Science Foundation via grant SES-0417911.

Type
Research Article
Information
Econometric Theory , Volume 23 , Issue 6 , December 2007 , pp. 1033 - 1082
Copyright
© 2007 Cambridge University Press

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