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This paper considers the finite sample distribution of the 2SLS estimator and derives bounds on its exact bias in the presence of weak and/or many instruments. We then contrast the behavior of the exact bias expressions and the asymptotic expansions currently popular in the literature, including a consideration of the no-moment problem exhibited by many Nagar-type estimators. After deriving a finite sample unbiased k-class estimator, we introduce a double k-class estimator based on Nagar (1962) that dominates k-class estimators (including 2SLS), especially in the cases of weak and/or many instruments. We demonstrate these properties in Monte Carlo simulations showing that our preferred estimators outperforms Fuller (1977) estimators in terms of mean bias and MSE.
Authors
Working Paper details
- DOI
- 10.1920/wp.cem.2015.4115
- Publisher
- Institute for Fiscal Studies
Suggested citation
M, Harding and J, Hausman and C, Palmer. (2015). Finite sample bias corrected IV estimation for weak and many instruments. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/finite-sample-bias-corrected-iv-estimation-weak-and-many-instruments (accessed: 27 April 2024).
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