Skip to main content

STICERD Econometrics Seminar Series

Optimal Linear Instrumental Variables Approximations

Juan Carlos Escanciano (Indiana University)

Thursday 05 March 2020 14:00 - 15:30

Many of our seminars and public events this year will continue as in person or as hybrid (online and in person) events. Please check our website listings and Twitter feed @STICERD_LSE for updates.

Unless otherwise specified, in-person seminars are open to the public. Please ensure you have informed the event contact as early as possible.

Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.


About this event

Ordinary least squares provides the optimal linear approximation to the true regression function under misspecification. This paper investigates the Instrumental Variables (IV) version of this problem. The resulting population parameter is called the Optimal Linear IV Approximation (OLIVA).This paper shows that a necessary condition for regular identification of the OLIVA is also sufficient for existence of an IV estimand in a linear IV model. The necessary condition holds for the important case of a binary endogenous treatment, leading also to a LATE interpretation with positive weights. The instrument in the IV estimand is unknown and is estimated in a first step. A Two-Step IV (TSIV) estimator is proposed. We establish the asymptotic normality of a debiased TSIV estimator based on locally robust moments. The TSIV estimator does not require neither completeness nor identification of the instrument. As a by-product of our analysis, we robustify the classical Hausman test for exogeneity against misspecification of the linear model. Monte Carlo simulations suggest excellent finite sample performance for the proposed inferences

STICERD Econometrics seminars are held on Thursdays in term time at 14.00-15.30, in SAL 3.05, unless specified otherwise.

Seminar organisers: Dr Yike Wang, Professor Tai Otsu, and Dr Vassilis Hajivassiliou.

For further information please contact Sadia Ali: s.ali43@lse.ac.uk.

Please use this link to subscribe or unsubscribe to STICERD Econometrics mailing list (emetrics).