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Are Nearly “Exogenous Instruments” Reliable?
Daniel Berkowitz, Mehmet Caner*, Ying Fang
#001987 20131014 (published) Views:1
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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