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A Robust Test for Weak Instruments

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  • José Luis Montiel Olea
  • Carolin Pflueger

Abstract

We develop a test for weak instruments in linear instrumental variables regression that is robust to heteroscedasticity, autocorrelation, and clustering. Our test statistic is a scaled nonrobust first-stage F statistic. Instruments are considered weak when the two-stage least squares or the limited information maximum likelihood Nagar bias is large relative to a benchmark. We apply our procedures to the estimation of the elasticity of intertemporal substitution, where our test cannot reject the null of weak instruments in a larger number of countries than the test proposed by Stock and Yogo in 2005. Supplementary materials for this article are available online.

Suggested Citation

  • José Luis Montiel Olea & Carolin Pflueger, 2013. "A Robust Test for Weak Instruments," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 31(3), pages 358-369, July.
    • Handle: RePEc:taf:jnlbes:v:31:y:2013:i:3:p:358-369
    DOI: 10.1080/00401706.2013.806694
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    1. Ruud, Paul A., 2000. "An Introduction to Classical Econometric Theory," OUP Catalogue, Oxford University Press, number 9780195111644.
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