st: re: 2sls and sample size

[Kit Baum <baum@bc.edu>]

< >
Carola said

I have read that while two-stage least squares and other instrumental  
variables estimators are consistent, they are not unbiased in small  
samples.  I wonder how large should the sample be in order to safely  
use two-stages least squares/instrumental variable estimation.  Is  
there a cutoff N?


As any textbook treatment of IV will demonstrate, IV estimators are  
biased at any sample size that you are likely to encounter in  
empirical work. The amount of the bias may become negligible, but it  
is there. You could evaluate the degree of bias with Monte Carlo  
readily enough.

Kit Baum, Boston College Economics and DIW Berlin
http://ideas.repec.org/e/pba1.html
An Introduction to Modern Econometrics Using Stata:
http://www.stata-press.com/books/imeus.html


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