Instrument-free inference under confined regressor endogeneity and mild regularity

Open Access
Authors
Publication date 01-2023
Journal Econometrics and Statistics
Volume | Issue number 25
Pages (from-to) 1-22
Organisations
  • Faculty of Economics and Business (FEB) - Amsterdam School of Economics Research Institute (ASE-RI)
  • Faculty of Economics and Business (FEB)
Abstract
The instrument-free approach adopts flexible bounds on the correlation between regressors and disturbances, instead of exploiting instruments presupposing their asymptotic uncorrelatedness with the model errors. Earlier findings on such instrument-free inference methods assumed the observations to be mesokurtic and independent and identically distributed. Adopting substantially weaker regularity, this alternative to Two-Stage Least-Squares (TSLS) is developed and simulated for general linear regression models, permitting time-dependent regressors with heterogeneous excess kurtosis. Replicating three prominent empirical studies TSLS is shown to be based on untenable exclusion restrictions, whereas instrument-free inference can arguably be more credible, while potentially producing narrower confidence intervals than (weak-instrument robust) TSLS.
Document type Article
Note With supplementary file
Language English
Published at https://doi.org/10.1016/j.ecosta.2021.12.008
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