Kleibergen, F. (2007). Generalizing weak intrument robust IV statistics towards multiple parameters, unrestricted covariance matrices and identification statistics. Journal of Econometrics, 139(1):181-216.
JournalJournal of Econometrics
We generalize the weak instrument robust score or Lagrange multiplier and likelihood ratio instrumental variables (IV) statistics towards multiple parameters and a general covariance matrix so they can be used in the generalized method of moments (GMM). The GMM extension of Moreira's [2003. A conditional likelihood ratio test for structural models. Econometrica 71, 1027-1048] conditional likelihood ratio statistic towards GMM preserves its expression except that it becomes conditional on a statistic that tests the rank of a matrix. We analyze the spurious power decline of Kleibergen's [2002. Pivotal statistics for testing structural parameters in instrumental variables regression. Econometrica 70, 1781-1803, 2005. Testing parameters in GMM without assuming that they are identified. Econometrica 73, 1103-1124] score statistic and show that an independent misspecification pre-test overcomes it. We construct identification statistics that reflect if the confidence sets of the parameters are bounded. A power study and the possible shapes of confidence sets illustrate the analysis.