Valid t-Ratio Inference for IV

David S. Lee, Justin McCrary, Marcelo J. Moreira, Jack Porter

Research output: Contribution to journalArticlepeer-review

50 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)3260-3290
Number of pages31
JournalAmerican Economic Review
Volume112
Issue number10
DOIs
StatePublished - Oct 2022

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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