Weak Instruments Flashcards
(6 cards)
1
Q
Problems with Weak Instruments: 1
A
Low precision
2
Q
Problems with Weak Instruments: 2
A
Compound small deviations in insrument exogeneity, leading to large inconsistencies
3
Q
Problems with Weak Instruments: 3
A
Even when the instrument is exogenous, the IV estimator may be biased, even in large samples
4
Q
Problems with Weak Instruments: 4
A
Estimated variance of IV estimator may significantly understate its true variance
5
Q
Problems with Weak Instruments: 5
A
Sampling distribution of IV estimator may not be normal
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.
