Testing overidentifying restrictions with many instruments and heteroscedasticity using regularised jackknife IV

Marine Carrasco, Mohamed Doukali

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)
3 Downloads (Pure)

Abstract

This paper proposes a new overidentifying restrictions test in a linear model when the number of instruments (possibly weak) may be smaller or larger than the sample size n or even infinite in a heteroscedastic framework. The proposed J test combines two techniques: the jackknife method and the regularisation technique which consists in stabilising the projection matrix. We theoretically show that our new test achieves the asymptotically correct size in the presence of many instruments. The simulation results demonstrate that our modified J statistic test has better empirical properties in small samples than existing J tests. We also propose a regularised F-test to assess the strength of the instruments, which is robust to heteroscedasticity and many instruments.
Original languageEnglish
Pages (from-to)71–97
Number of pages27
JournalThe Econometrics Journal
Volume25
Issue number1
Early online date9 Jul 2021
DOIs
Publication statusPublished - Jan 2022

Keywords

  • Heteroscedasticity
  • many instruments
  • overidentification tests
  • regularisation method
  • weak instruments

Cite this