Testing overidentifying restrictions with many instruments and heteroscedasticity using regularised jackknife IV

Carrasco, Marine and Doukali, Mohamed (2022) Testing overidentifying restrictions with many instruments and heteroscedasticity using regularised jackknife IV. The Econometrics Journal, 25 (1). 71–97. ISSN 1368-4221

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Abstract

This paper proposes a new overidentifying restrictions test in a linear model when the number of instruments (possibly weak) may be smaller or larger than the sample size n or even infinite in a heteroscedastic framework. The proposed J test combines two techniques: the jackknife method and the regularisation technique which consists in stabilising the projection matrix. We theoretically show that our new test achieves the asymptotically correct size in the presence of many instruments. The simulation results demonstrate that our modified J statistic test has better empirical properties in small samples than existing J tests. We also propose a regularised F-test to assess the strength of the instruments, which is robust to heteroscedasticity and many instruments.

Item Type: Article
Additional Information: This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.
Uncontrolled Keywords: heteroscedasticity,many instruments,overidentification tests,regularisation method,weak instruments,economics and econometrics ,/dk/atira/pure/subjectarea/asjc/2000/2002
Faculty \ School: Faculty of Social Sciences > School of Economics
UEA Research Groups: Faculty of Social Sciences > Research Groups > Applied Econometrics And Finance
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Depositing User: LivePure Connector
Date Deposited: 24 Apr 2023 13:30
Last Modified: 04 Sep 2023 01:11
URI: https://ueaeprints.uea.ac.uk/id/eprint/91868
DOI: 10.1093/ectj/utab020

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