A survey of weak instruments and weak identification in generalized method of moments

James H. Stock, Jonathan H. Wright, Motohiro Yogo

Research output: Contribution to journalReview article

1545 Scopus citations

Abstract

Weak instruments arise when the instruments in linear instrumental variables (IV) regression are weakly correlated with the included endogenous variables. In generalized method of moments (GMM), more generally, weak instruments correspond to weak identification of some or all of the unknown parameters. Weak identification leads to GMM statistics with nonnormal distributions, even in large samples, so that conventional IV or GMM inferences are misleading. Fortunately, various procedures are now available for detecting and handling weak instruments in the linear IV model and, to a lesser degree, in nonlinear GMM.

Original languageEnglish (US)
Pages (from-to)518-529
Number of pages12
JournalJournal of Business and Economic Statistics
Volume20
Issue number4
DOIs
StatePublished - Oct 1 2002
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Keywords

  • Instrument relevance
  • Instrumental variables
  • Similar tests

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