Reduced forms and weak instrumentation
Reduced forms and weak instrumentation
This paper develops exact finite sample and asymptotic distributions for a class of reduced form estimators and predictors, allowing for the presence of unidentified or weakly identified structural equations. Weak instrument asymptotic theory is developed directly from finite sample results, unifying earlier findings and showing the usefulness of structural information in making predictions from reduced form systems in applications. Asymptotic results are reported for predictions from models with many weak instruments. Of particular interest is the finding that, in unidentified and weakly identified structural models, partially restricted reduced form predictors have considerably smaller forecast mean square errors than unrestricted reduced forms. These results are related to the use of shrinkage methods in system-wide reduced form estimation.
Endogeneity, exact distribution, finite sample theory, moment existence, partial identification, reduced form, structural equation, unidentified structure, weak instrument
818-839
Phillips, Peter C.B.
f67573a4-fc30-484c-ad74-4bbc797d7243
21 October 2017
Phillips, Peter C.B.
f67573a4-fc30-484c-ad74-4bbc797d7243
Abstract
This paper develops exact finite sample and asymptotic distributions for a class of reduced form estimators and predictors, allowing for the presence of unidentified or weakly identified structural equations. Weak instrument asymptotic theory is developed directly from finite sample results, unifying earlier findings and showing the usefulness of structural information in making predictions from reduced form systems in applications. Asymptotic results are reported for predictions from models with many weak instruments. Of particular interest is the finding that, in unidentified and weakly identified structural models, partially restricted reduced form predictors have considerably smaller forecast mean square errors than unrestricted reduced forms. These results are related to the use of shrinkage methods in system-wide reduced form estimation.
Text
Reduced_Forms_Rev_A6
- Accepted Manuscript
More information
Accepted/In Press date: 14 November 2015
e-pub ahead of print date: 27 March 2017
Published date: 21 October 2017
Keywords:
Endogeneity, exact distribution, finite sample theory, moment existence, partial identification, reduced form, structural equation, unidentified structure, weak instrument
Identifiers
Local EPrints ID: 413184
URI: http://eprints.soton.ac.uk/id/eprint/413184
ISSN: 0747-4938
PURE UUID: ca1ef49f-ef5b-4e1f-8869-1ae73f351764
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Date deposited: 17 Aug 2017 16:30
Last modified: 16 Mar 2024 05:39
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