Valid t-ratio Inference for IV / David S. Lee, Justin McCrary, Marcelo J. Moreira, Jack R. Porter.

Format:

Book

Author/Creator:

Lee, David S.

Contributor:

National Bureau of Economic Research.

McCrary, Justin.

Moreira, Marcelo J.

Porter, Jack R.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29124.

NBER working paper series no. w29124

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

In the single-IV model, researchers commonly rely on t-ratio-based inference, even though the literature has quantified its potentially severe large-sample distortions. Building on Stock and Yogo (2005), we introduce the tF critical value function, leading to a standard error adjustment that is a smooth function of the first-stage F-statistic. For one-quarter of specifications in 61 AER papers, corrected standard errors are at least 49 and 136 percent larger than conventional 2SLS standard errors at the 5-percent and 1-percent significance levels, respectively. tF confidence intervals have shorter expected length than those of Anderson and Rubin (1949), whenever both are bounded.

Notes:

Print version record

August 2021.