American Economic Review Vol. 112 No. 10 2022
Valid t-ratio Inference for IV
Abstract
In the single-IV model, researchers commonly rely on t-ratio-based inference, even though the literature has quantified its potentially severe large-sample distortions. Building on Stock and Yogo (2005), we introduce the tF critical value function, leading to a standard error adjustment that is a smooth function of the first-stage F-statistic. For one-quarter of specifications in 61 AER papers, corrected standard errors are at least 49 and 136 percent larger than conventional 2SLS standard errors at the 5 percent and 1 percent significance levels, respectively. tF confidence intervals have shorter expected length than those of Anderson and Rubin (1949), whenever both are bounded.
- DOI
- 10.1257/aer.20211063
- Volume
- 112
- Issue
- 10
- Pages
- 3260-3290
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref