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st: ivreg2

From   Kit Baum <>
Subject   st: ivreg2
Date   Sat, 3 Feb 2007 20:25:21 -0500

Sandra asks

I am using instrumental variables and have a weak instrument, according
to the F-test. I only have one endogenous variable and my sample is
large. I wonder if there are better statistics to investigate if an
instrument is weak (perhaps the Hahn and Hausman test testing the null
hypothesis that the instrument is strong), and if stata supports these
statistics. I also would like to ask if stata contains any routine that
would provide estimates robust to weak instruments.

Diagnosis of instruments' weakness is complicated when there are multiple endogenous regressors. When there is only one, it is simple: if the single first-stage regression fits poorly, you have weak instruments, and the IV estimates will suffer. We have recently added diagnostics by Stock and Yogo for the weak instruments case. In the presence of weak instruments, the bias of the IV estimates cause them to approach the (inconsistent) OLS estimates.

There is no such thing as 'estimates robust to weak instruments'. You are using instruments to generate consistent estimate of the equation, and if the instruments are only weakly correlated to the endogenous variable, your results will be poor. The way to render them robust is to get better instruments.


Kit Baum, Boston College Economics
An Introduction to Modern Econometrics Using Stata:

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