Dear Statalisters,
Practically, any textbooks that talk about instrumental variable
methods emphasize that with weak instruments, IV estimates will be
biased towards OLS estimates. The way I interpret this statement is
that the IV and OLS coefficients should have a very similar size.
However, this intepretation is not confirmed (at least apparently) by
my experience with IV methods. In fact, I usually find that the
F-statistics for the excluded instruments and/or Donald-Cragg
statistics (see Stock and Yogo, 2004) used to test for weak
instruments are low or lower than the critical values tabulated by
Stock and Yogo (2004), but the IV estimates are 2 or 3 times as large
as the OLS estimates.
Most likely, this implies that I am misinterpreting the statement that
"IV estimates are biased towards OLS estimates with weak instruments".
Can anyone provide any hints on how I should interpret this statement?
Thanks and best regards,
Erasmo
Reference
Stock and Yogo, 2004, Testing for Weak Instruments in Linear IV
Regressions, (can be found at:
http://ksghome.harvard.edu/~jstock/ams/websupp/rfa_7.pdf )
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