Type of Publication: | Journal article |
Publication status: | Published |
Author: | Kim, Namhyun; Pohlmeier, Winfried |
Year of publication: | 2016 |
Published in: | Oxford Bulletin of Economics and Statistics ; 78 (2016), 6. - pp. 915-924. - ISSN 0305-9049. - eISSN 1468-0084 |
DOI (citable link): | https://dx.doi.org/10.1111/obes.12144 |
Summary: |
The presence of weak instruments is translated into a nearly singular problem in a control function representation. Therefore, the L2-norm type of regularization is proposed to implement the 2SLS estimation for addressing the weak instrument problem. The L2-norm regularization with a regularized parameter O(n) allows us to obtain the Rothenberg (1984) type of higher-order approximation of the 2SLS estimator in the weak instrument asymptotic framework. The proposed regularized parameter yields the regularized concentration parameter O(n), which is used as a standardized factor in the higher-order approximation. We also show that the proposed L2-norm regularization consequently reduces the finite sample bias. A number of existing estimators that address finite sample bias in the presence of weak instruments, especially Fuller's limited information maximum likelihood estimator, are compared with our proposed estimator in a simple Monte Carlo exercise.
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Subject (DDC): | 330 Economics |
Bibliography of Konstanz: | Yes |
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KIM, Namhyun, Winfried POHLMEIER, 2016. A Note on the Regularized Approach to Biased 2SLS Estimation with Weak Instruments. In: Oxford Bulletin of Economics and Statistics. 78(6), pp. 915-924. ISSN 0305-9049. eISSN 1468-0084. Available under: doi: 10.1111/obes.12144
@article{Kim2016-07-23Regul-36281, title={A Note on the Regularized Approach to Biased 2SLS Estimation with Weak Instruments}, year={2016}, doi={10.1111/obes.12144}, number={6}, volume={78}, issn={0305-9049}, journal={Oxford Bulletin of Economics and Statistics}, pages={915--924}, author={Kim, Namhyun and Pohlmeier, Winfried} }