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A jackknife Lagrange multiplier test with many weak instruments

Matsushita, Yukitoshi and Otsu, Taisuke (2022) A jackknife Lagrange multiplier test with many weak instruments. Econometric Theory. ISSN 1469-4360

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Abstract

This paper proposes a jackknife Lagrange multiplier (JLM) test for instrumental variable regression models, which is robust to (i) many instruments, where the number of instruments may increase proportionally with the sample size, (ii) arbitrarily weak instruments, and (iii) heteroskedastic errors. In contrast to Crudu, Mellace and Sándor (2021) and Mikusheva and Sun (2021) who proposed jackknife Anderson-Rubin tests that are also robust to (i)-(iii), we modify a score statistic by jackknifing and construct its heteroskedasticity robust variance estimator. Compared to the Lagrange multiplier tests by Kleibergen (2002) and Moreira (2001) and their modification for many instruments by Hansen, Hausman and Newey (2008), our JLM test is robust to heteroskedastic errors and may circumvent a possible decrease in the power function. Simulation results illustrate the desirable size and power properties of the proposed method.

Item Type: Article
Additional Information: © 2022 Cambridge University Press.
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: J - Labor and Demographic Economics > J1 - Demographic Economics > J10 - General
Date Deposited: 26 Aug 2022 09:00
Last Modified: 03 Dec 2022 00:16
URI: http://eprints.lse.ac.uk/id/eprint/116392

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