Constructing Optimal Instruments by First Stage Prediction Averaging
Guido Kuersteiner and Ryo Okui ,
2
( 78 )
Econometrica
697-718
March
2010
wiv_v41.pdf448.29 KB
Abstract

This paper considers model averaging as a way to select instruments for the two stage least squares and limited information maximum likelihood estimators in the presence of many instruments. We propose averaging across least squares predictions of the endogenous variables obtained from many different choices of instruments and then use the average predicted value of the endogenous variables in the estimation stage. The weights for averaging are chosen to minimize the asymptotic mean squared error.

Links to Researchers