Weak Instruments Flashcards

(6 cards)

1
Q

Problems with Weak Instruments: 1

A

Low precision

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2
Q

Problems with Weak Instruments: 2

A

Compound small deviations in insrument exogeneity, leading to large inconsistencies

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3
Q

Problems with Weak Instruments: 3

A

Even when the instrument is exogenous, the IV estimator may be biased, even in large samples

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4
Q

Problems with Weak Instruments: 4

A

Estimated variance of IV estimator may significantly understate its true variance

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5
Q

Problems with Weak Instruments: 5

A

Sampling distribution of IV estimator may not be normal

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6
Q

Weak instruments and low precision: when do we prefer the OLS estimator to the IV estimator?

A

When the instrument is very weak and the endogeneity of x is small, we may prefer the OLS estimator.

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