Wang, Wenjie (2021): Wild Bootstrap for Instrumental Variables Regression with Weak Instruments and Few Clusters.

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Abstract
Under a framework with a small number of clusters but large numbers of observations per cluster for instrumental variable (IV) regression, we show that an unstudentized wild bootstrap test based on IV estimators such as the twostage least squares estimator is valid as long as the instruments are strong for at least one cluster. This is different from alternative methods proposed in the literature for inference with a small number of clusters, whose validity would require that the instruments be strong for all clusters. Moreover, for the leading case in empirical applications with a single instrument, the unstudentized wild bootstrap test generated by our procedure is fully robust to weak instrument in the sense that its limiting null rejection probability is no greater than the nominal level even if all clusters are ``weak". However, such robustness is not shared by its studentized version; the wild bootstrap test that is based on the ttest statistic can have serious size distortion in this case. Furthermore, in the general case with multiple instruments, we show that an unstudentized version of bootstrap AndersonRubin (AR) test is fully robust to weak instruments, and is superior with regard to both size and power properties to alternative asymptotic and bootstrap AR tests that employ clusterrobust variance estimators. By contrast, we �find that bootstrapping other weakinstrumentrobust tests such as the Lagrange multiplier test and the conditional quasilikelihood ratio test, no matter studentized or unstudentized, does not guarantee correct limiting null rejection probability when all clusters are ``weak".
Item Type:  MPRA Paper 

Original Title:  Wild Bootstrap for Instrumental Variables Regression with Weak Instruments and Few Clusters 
Language:  English 
Keywords:  Weak Instrument, Wild Bootstrap, Clustered Data, Randomization Test 
Subjects:  C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C12  Hypothesis Testing: General C  Mathematical and Quantitative Methods > C1  Econometric and Statistical Methods and Methodology: General > C15  Statistical Simulation Methods: General C  Mathematical and Quantitative Methods > C2  Single Equation Models ; Single Variables > C26  Instrumental Variables (IV) Estimation 
Item ID:  106227 
Depositing User:  Dr. Wenjie Wang 
Date Deposited:  21 Feb 2021 15:00 
Last Modified:  21 Feb 2021 15:00 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/106227 