A conditional linear combination test with many weak instruments

DOI10.1016/J.JECONOM.2023.105602MaRDI QIDQ6152636zbMATH OpenFDO

Authors Dennis Lim, Wenjie Wang, Yichong Zhang

Publication date 13 February 2024

Published in Journal of Econometrics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2207.11137

zbMATH Keywords

many instrumentspowersizeweak identification

Mathematics Subject Classification ID

Statistics (62-XX) Game theory, economics, finance, and other social and behavioral sciences (91-XX)

Abstract: We consider a linear combination of jackknife Anderson-Rubin (AR), jackknife Lagrangian multiplier (LM), and orthogonalized jackknife LM tests for inference in IV regressions with many weak instruments and heteroskedasticity. Following I.Andrews (2016), we choose the weights in the linear combination based on a decision-theoretic rule that is adaptive to the identification strength. Under both weak and strong identifications, the proposed test controls asymptotic size and is admissible among certain class of tests. Under strong identification, our linear combination test has optimal power against local alternatives among the class of invariant or unbiased tests which are constructed based on jackknife AR and LM tests. Simulations and an empirical application to Angrist and Krueger's (1991) dataset confirm the good power properties of our test.

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