- Are Nearly “Exogenous Instruments” Reliable?
- Daniel Berkowitz, Mehmet Caner*, Ying Fang
- #001987 20131014 (published)
- We show that when instruments are nearly exogenous, the two stage least squares t-statistic unpredictably over-rejects or under-rejects the null hypothesis that the endogenous regressor is insignificant and Anderson-Rubin test over-rejects the null. We prove that in the limit these tests are no longer nuisance parameter free.
- JEL-Codes: C30
- Keywords: Valid Instruments, Weak Identification, Inference.
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