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Wild bootstrap test of overidentification with many instruments and heteroskedasticity

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  • Wang, Wenjie

Abstract

This note studies the validity of bootstrapping the test of overidentifying restrictions under many/many weak instruments and heteroskedasticity. We propose a wild bootstrap procedure and establish this bootstrap consistently estimates the null limiting distributions of a jackknife overidentification test statistic under this asymptotic framework, no matter studentized or not. Monte Carlo simulations show that the wild bootstrap provides more reliable inference than asymptotic critical values. In particular, the studentized wild bootstrap test has the best finite sample performance in terms of both size and power.

Suggested Citation

  • Wang, Wenjie, 2022. "Wild bootstrap test of overidentification with many instruments and heteroskedasticity," MPRA Paper 115168, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:115168
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    References listed on IDEAS

    as
    1. Moreira, Marcelo J. & Porter, Jack R. & Suarez, Gustavo A., 2009. "Bootstrap validity for the score test when instruments may be weak," Journal of Econometrics, Elsevier, vol. 149(1), pages 52-64, April.
    2. Jerry A. Hausman & Whitney K. Newey & Tiemen Woutersen & John C. Chao & Norman R. Swanson, 2012. "Instrumental variable estimation with heteroskedasticity and many instruments," Quantitative Economics, Econometric Society, vol. 3(2), pages 211-255, July.
    3. Kaffo, Maximilien & Wang, Wenjie, 2017. "On bootstrap validity for specification testing with many weak instruments," Economics Letters, Elsevier, vol. 157(C), pages 107-111.
    4. Marine Carrasco & Mohamed Doukali, 2022. "Testing overidentifying restrictions with many instruments and heteroscedasticity using regularised jackknife IV," The Econometrics Journal, Royal Economic Society, vol. 25(1), pages 71-97.
    5. Russell Davidson & James G. MacKinnon, 2015. "Bootstrap Tests for Overidentification in Linear Regression Models," Econometrics, MDPI, vol. 3(4), pages 1-39, December.
    6. Stanislav Anatolyev, 2019. "Many Instruments And/Or Regressors: A Friendly Guide," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 689-726, April.
    7. Wang, Wenjie & Kaffo, Maximilien, 2016. "Bootstrap inference for instrumental variable models with many weak instruments," Journal of Econometrics, Elsevier, vol. 192(1), pages 231-268.
    8. Wang, Wenjie, 2020. "On the inconsistency of nonparametric bootstraps for the subvector Anderson–Rubin test," Economics Letters, Elsevier, vol. 191(C).
    9. Davidson, Russell & MacKinnon, James G., 2010. "Wild Bootstrap Tests for IV Regression," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(1), pages 128-144.
    10. Chao, John C. & Hausman, Jerry A. & Newey, Whitney K. & Swanson, Norman R. & Woutersen, Tiemen, 2014. "Testing overidentifying restrictions with many instruments and heteroskedasticity," Journal of Econometrics, Elsevier, vol. 178(P1), pages 15-21.
    11. Anatolyev, Stanislav & Gospodinov, Nikolay, 2011. "Specification Testing In Models With Many Instruments," Econometric Theory, Cambridge University Press, vol. 27(2), pages 427-441, April.
    12. Russell Davidson & James G. MacKinnon, 2008. "Bootstrap inference in a linear equation estimated by instrumental variables," Econometrics Journal, Royal Economic Society, vol. 11(3), pages 443-477, November.
    13. Wang, Wenjie & Doko Tchatoka, Firmin, 2018. "On Bootstrap inconsistency and Bonferroni-based size-correction for the subset Anderson–Rubin test under conditional homoskedasticity," Journal of Econometrics, Elsevier, vol. 207(1), pages 188-211.
    14. Keith Finlay & Leandro M. Magnusson, 2019. "Two applications of wild bootstrap methods to improve inference in cluster‐IV models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(6), pages 911-933, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    wild bootstrap; overidentification test; many instruments; weak instruments; heteroskedasticity;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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