On the relevance of weaker instruments

Bertille Antoine, Eric Renault

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

We study the asymptotic properties of the standard GMM estimator when additional moment restrictions, weaker than the original ones, are available. We provide conditions under which these additional weaker restrictions improve the efficiency of the GMM estimator. To detect “spurious” identification that may come from invalid moments, we rely on the Hansen J-test that assesses the compatibility between existing restrictions and additional ones. Our simulations reveal that the J-test has good power properties and that its power increases with the weakness of the additional restrictions. Our theoretical characterization of the J-test provides some intuition for why that is.

Original languageEnglish
Pages (from-to)928-945
Number of pages18
JournalEconometric Reviews
Volume36
Issue number6-9
DOIs
Publication statusPublished - 21 Oct 2017
Externally publishedYes

Keywords

  • GMM
  • J-test
  • local misspecification
  • redundancy
  • weak IV

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