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st: Interpreting Kleibergen Paap weak instrument statistic


From   "Fitzgerald, James" <J.Fitzgerald2@ucc.ie>
To   "statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu>
Subject   st: Interpreting Kleibergen Paap weak instrument statistic
Date   Thu, 21 Jun 2012 13:01:55 +0000

Hi Statalist users

I am using xtivreg2 to estimate a GMM-IV model (I specify the following options; fe robust bw(2) gmm2s). I am not assuming i.i.d errors, and thus when testing for weak instruments I am using the Kleibergen Paap rk wald F statistic rather than the Cragg Donald wald F statistic.

xtivreg2 produces Stock-Yogo critical values for the Cragg Donald statistic assuming i.i.d errors, so I'm not sure how to interpret the KP rk wald F stat. 

The help file for ivreg2 (Baum, Schaffer and Stillman, 2010) does however mention the following: 

When the i.i.d. assumption is dropped and ivreg2 is invoked with the robust, bw
or cluster options, the Cragg-Donald-based weak instruments test is no longer
valid.  ivreg2 instead reports a correspondingly-robust Kleibergen-Paap Wald rk
F statistic.  The degrees of freedom adjustment for the rk statistic is
(N-L)/L1, as with the Cragg-Donald F statistic, except in the cluster-robust
case, when the adjustment is N/(N-1) * (N_clust-1)/N_clust, following the
standard Stata small-sample adjustment for cluster-robust. In the case of
two-way clustering, N_clust is the minimum of N_clust1 and N_clust2.  The
critical values reported by ivreg2 for the Kleibergen-Paap statistic are the
Stock-Yogo critical values for the Cragg-Donald i.i.d. case.  The critical
values reported with 2-step GMM are the Stock-Yogo IV critical values, and the
critical values reported with CUE are the LIML critical values.


My understanding of the end of the paragraph is that the KP stat can still be compared to the Stock-Yogo values produced by STATA in determining whether or not instruments are weak.

If someone could confirm or reject this I would be eternally grateful!!

Best wishes

James Fitzgerald
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