We provide analytical formulae for the asymptotic bias (ABIAS) and mean-squared error (AMSE) of the IV estimator, and obtain approximations thereof based on an asymptotic scheme which essentially requires the expectation of the first stage F-statistic to converge to a finite (possibly small) positive limit as the number of instruments approaches infinity. Our analytical formulae can be viewed as generalizing the bias and MSE results of [Richardson and Wu 1971. A note on the comparison of ordinary and two-stage least squares estimators. Econometrica 39, 973-982] to the case with nonnormal errors and stochastic instruments. Our approximations are shown to compare favorably with approximations due to [Morimune 1983. Approximate distributions of k-class estimators when the degree of overidentifiability is large compared with the sample size. Econometrica 51, 821-841] and [Donald and Newey 2001. Choosing the number of instruments. Econometrica 69, 1161-1191], particularly when the instruments are weak. We also construct consistent estimators for the ABIAS and AMSE, and we use these to further construct a number of bias corrected OLS and IV estimators, the properties of which are examined both analytically and via a series of Monte Carlo experiments.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Confluent hypergeometric function
- Laplace approximation
- Local-to-zero asymptotics
- Weak instruments