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Re: st: clarification on interpreting Stock&Yogo- maximal IV "size"

From   "Nirina F" <[email protected]>
To   [email protected]
Subject   Re: st: clarification on interpreting Stock&Yogo- maximal IV "size"
Date   Tue, 25 Sep 2007 11:27:41 -0400

Austin, so let me make sure with you with the info from my ivreg2
below that indeed my identification is strong as the CraggDonald F
stat is above the critical values from OLS bias and that I am
rejecting my hypothesis  of weak instruments actually at 20%.
Much thanks,

Number of observations               N  =        728
Number of regressors                 K  =         57
Number of instruments                L  =        109
Number of excluded instruments       L1 =         53
Number of partialled-out regressors/IVs =          1
Underidentification test (Anderson canon. corr. LM statistic):         607.412
                                                   Chi-sq(53) P-val =   0.0000
Weak identification test (Cragg-Donald Wald F statistic):               58.734
Stock-Yogo weak ID test critical values:  5% maximal IV relative bias    21.30
                                         10% maximal IV relative bias    11.10
                                         20% maximal IV relative bias     5.86
                                         30% maximal IV relative bias     4.07
                                         10% maximal IV size            141.08
                                         15% maximal IV size             72.44
                                         20% maximal IV size             49.26
                                         25% maximal IV size             37.65
Source: Stock-Yogo (2005).  Reproduced by permission.
Sargan statistic (overidentification test of all instruments):          58.317
                                                   Chi-sq(52) P-val =   0.2544

On 9/25/07, Austin Nichols <[email protected]> wrote:
> Nirina F <[email protected]>:
> The IV estimate is always biased, but is less biased than OLS to the
> extent that identification is strong; in the limit of weak
> instruments, there would be no improvement over OLS in terms of bias
> and the bias would be 100% of OLS, and in the other limit, the bias
> would be zero percent. Clearly, you'd like to know where you are on
> that spectrum, even if only approximately. There is also a problem
> with the size of tests after IV--you think you are rejecting a
> hypothesis using a 5% alpha, but it is really 10% or 20%. Stock and
> Yogo did simulations to provide "rule of thumb" critical values (or
> rule of thumb "critical values" perhaps). Table 1 on page 39 of Stock
> and Yogo ( shows the
> value of the SY stat (a measure of the "strength of identification" or
> the predictive power of the excluded instruments) to limit the bias to
> 20% of OLS for two endogenous variables and three excluded instruments
> (n=2, K2=5) is 5.91 (similar values are given to limit the size of
> Wald tests in table 2, and stats for LIML estimates in tables 3 and
> 4).
> It's not clear what you don't understand from the Stock and Yogo
> paper, so it's hard to comment directly.  If you gave your n and K2
> values and the SY stat from the output of -ivreg2- I suppose one could
> describe directly the situation in which you find yourself.
> But the key point is that all IV and IV-type specifications suffer
> from bias and size distortions, not to mention inefficiency and
> sometimes failures of exclusion restrictions. The SY stat gives you
> some measure of how strong your identification is in your sample, but
> no information about the validity of your instruments.  Hope you also
> read  BSS2007:
> and I expect -ranktest- will generate a new set of papers eventually
> (-ssc install ranktest- and -help ranktest- for more).
> On 9/25/07, Nirina F <[email protected]> wrote:
> > Dear all,
> >
> > Yes, I read
> >  Stock, J.H. and Yogo, M.  2005. " Testing for Weak Instruments in
> > Linear IV Regression"
> >
> > but I still don't understand how do I interpret the critical values of
> >  the Stock&Yogo- maximal IV size when using ivreg2.
> >
> > I think I compare the critical values from  x%maximal IV relative bias
> > with the Cragg-Donald stat to test for weak instruments but the
> > critical values for the size with what and what it means?
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