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Nonparametric Instrumental Variables Estimation Under Misspecification

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  • Ben Deaner

Abstract

Nonparametric Instrumental Variables (NPIV) analysis is based on a conditional moment restriction. We show that if this moment condition is even slightly misspecified, say because instruments are not quite valid, then NPIV estimates can be subject to substantial asymptotic error and the identified set under a relaxed moment condition may be large. Imposing strong a priori smoothness restrictions mitigates the problem but induces bias if the restrictions are too strong. In order to manage this trade-off we develop a methods for empirical sensitivity analysis and apply them to the consumer demand data previously analyzed in Blundell (2007) and Horowitz (2011).

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  • Ben Deaner, 2019. "Nonparametric Instrumental Variables Estimation Under Misspecification," Papers 1901.01241, arXiv.org, revised Dec 2022.
    • Handle: RePEc:arx:papers:1901.01241
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    References listed on IDEAS

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    1. Xiaohong Chen & Demian Pouzo, 2015. "Sieve Wald and QLR Inferences on Semi/Nonparametric Conditional Moment Models," Econometrica, Econometric Society, vol. 83(3), pages 1013-1079, May.
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