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Judging Instrument Relevance in Instrumental Variables Estimation

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  • Hall, Alastair R
  • Rudebusch, Glenn D
  • Wilcox, David W

Abstract

Recent research has emphasized the poor finite-sample performance of the instrumental variables estimator when the instruments are weakly correlated with the regressors. The authors show how the canonical correlations between regressors and instruments can provide a measure of instrument relevance in the general multiple-instrument-multiple-regressor case. However, their simulation results indicate that any such relevance measure probably has little practical merit, as its use may actually exacerbate the poor finite-sample properties of the instrumental variables estimator. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Hall, Alastair R & Rudebusch, Glenn D & Wilcox, David W, 1996. "Judging Instrument Relevance in Instrumental Variables Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(2), pages 283-298, May.
    • Handle: RePEc:ier:iecrev:v:37:y:1996:i:2:p:283-98
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