IDEAS home Printed from https://ideas.repec.org/a/eee/ecolet/v189y2020ics0165176520300641.html
   My bibliography  Save this article

Analytical formulae for accurately sized t-tests in the single instrument case

Author

Listed:
  • Kocherlakota, Narayana R.

Abstract

I construct novel analytical expressions for asymptotically valid right-tailed and left-tailed t-tests in the single instrument-single regressor case. The underlying disturbances are allowed to be non-Gaussian and (in a simple extension of the baseline case) heteroskedastic. The critical values for the tests are constructed under the (testable) assumption that the expectation of the F-statistic in the first-stage regression is greater than a lower bound (1+μLB2). The asymptotic sizes of the implied one-tailed (two-tailed) tests are within 2Φ(−μLB)(4Φ(−μLB)) of their nominal values, where Φ is the cdf of a standard normal random variable. The resulting degree of control over asymptotic test sizes is considerably superior to that provided by the standard Stock–Yogo (2005) approach.

Suggested Citation

  • Kocherlakota, Narayana R., 2020. "Analytical formulae for accurately sized t-tests in the single instrument case," Economics Letters, Elsevier, vol. 189(C).
    • Handle: RePEc:eee:ecolet:v:189:y:2020:i:c:s0165176520300641
    DOI: 10.1016/j.econlet.2020.109053
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165176520300641
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econlet.2020.109053?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Andrews,Donald W. K. & Stock,James H. (ed.), 2005. "Identification and Inference for Econometric Models," Cambridge Books, Cambridge University Press, number 9780521844413, January.
    2. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    3. Woglom, Geoffrey, 2001. "More Results on the Exact Small Sample Properties of the Instrumental Variable Estimator," Econometrica, Econometric Society, vol. 69(5), pages 1381-1389, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Poskitt, D.S. & Skeels, C.L., 2007. "Approximating the distribution of the two-stage least squares estimator when the concentration parameter is small," Journal of Econometrics, Elsevier, vol. 139(1), pages 217-236, July.
    2. Vieira, Flávio & MacDonald, Ronald & Damasceno, Aderbal, 2012. "The role of institutions in cross-section income and panel data growth models: A deeper investigation on the weakness and proliferation of instruments," Journal of Comparative Economics, Elsevier, vol. 40(1), pages 127-140.
    3. Markus Brueckner & Daniel Lederman, 2018. "Inequality and economic growth: the role of initial income," Journal of Economic Growth, Springer, vol. 23(3), pages 341-366, September.
    4. Caroline Flammer & Michael W. Toffel & Kala Viswanathan, 2021. "Shareholder activism and firms' voluntary disclosure of climate change risks," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1850-1879, October.
    5. Hilber, Christian A.L., 2010. "New housing supply and the dilution of social capital," Journal of Urban Economics, Elsevier, vol. 67(3), pages 419-437, May.
    6. Katsiaryna Bardos & Steven E. Kozlowski & Michael R. Puleo, 2021. "Entrenchment or efficiency? CEO‐to‐employee pay ratio and the cost of debt," The Financial Review, Eastern Finance Association, vol. 56(3), pages 511-533, August.
    7. Milo Bianchi & Paolo Buonanno & Paolo Pinotti, 2012. "Do Immigrants Cause Crime?," Journal of the European Economic Association, European Economic Association, vol. 10(6), pages 1318-1347, December.
    8. Bernd Hayo & Ummad Mazhar, 2014. "Monetary Policy Committee Transparency: Measurement, Determinants, and Economic Effects," Open Economies Review, Springer, vol. 25(4), pages 739-770, September.
    9. Shi, Guanming & Stiegert, Kyle & Chavas, Jean Paul, 2010. "An Analysis of Pricing in Horizontal and Vertical Markets: The Case of the Cottonseed Market," Working Papers 201439, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    10. A. Belloni & D. Chen & V. Chernozhukov & C. Hansen, 2012. "Sparse Models and Methods for Optimal Instruments With an Application to Eminent Domain," Econometrica, Econometric Society, vol. 80(6), pages 2369-2429, November.
    11. Mohammad Reza Farzanegan, 2020. "Cognitive ability and corruption: rule of law (still) matters," Empirical Economics, Springer, vol. 59(4), pages 1723-1743, October.
    12. Mukhopadhyay, Jhuma & Chakraborty, Indrani, 2017. "Foreign institutional investment, business groups and firm performance: Evidence from India," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 454-465.
    13. Alexandra Sotiriou & Andrés Rodríguez-Pose, 2021. "Chinese vs. US Trade in an Emerging Country: The Impact of Trade Openness in Chile," Journal of Development Studies, Taylor & Francis Journals, vol. 57(12), pages 2095-2111, December.
    14. Iglesias Emma M., 2011. "Constrained k-class Estimators in the Presence of Weak Instruments," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 15(4), pages 1-13, September.
    15. Tito Belchior Silva Moreira & Benjamin Miranda Tabak & Mario Jorge Mendonça & Adolfo Sachsida, 2016. "An Evaluation of the Non-Neutrality of Money," PLOS ONE, Public Library of Science, vol. 11(3), pages 1-20, March.
    16. Aysit Tansel & Ceyhan Ozturk & Erkan Erdil, 2021. "The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study," Koç University-TUSIAD Economic Research Forum Working Papers 2118, Koc University-TUSIAD Economic Research Forum.
    17. Gergely Ganics & Atsushi Inoue & Barbara Rossi, 2021. "Confidence Intervals for Bias and Size Distortion in IV and Local Projections-IV Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 39(1), pages 307-324, January.
    18. Ribeiro, André L.P. & Hotta, Luiz K., 2013. "An analysis of contagion among Asian countries using the canonical model of contagion," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 62-69.
    19. Sisira Sarma & Rose Anne Devlin & Jason Gilliland & M. Karen Campbell & Gregory S. Zaric, 2015. "The Effect of Leisure‐Time Physical Activity on Obesity, Diabetes, High BP and Heart Disease Among Canadians: Evidence from 2000/2001 to 2005/2006," Health Economics, John Wiley & Sons, Ltd., vol. 24(12), pages 1531-1547, December.
    20. Gao, Wenshu & Smyth, Russell, 2011. "Economic returns to speaking 'standard Mandarin' among migrants in China's urban labour market," Economics of Education Review, Elsevier, vol. 30(2), pages 342-352, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:189:y:2020:i:c:s0165176520300641. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolet .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.