Valid t-Ratio Inference for IV

Authors

David S. Lee, Princeton University
Justin McCrary, Columbia Law SchoolFollow
Marcelo J. Moreira, FGV EPGE
Jack Porter, University of Wisconsin

Document Type

Article

Publication Date

2022

DOI

https://doi.org/10.1257/aer.20211063

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.

Disciplines

Law | Law and Economics

Comments

Copyright © 2022 by the American Economic Association.

Recommended Citation

David S. Lee, Justin McCrary, Marcelo J. Moreira & Jack Porter, Valid t-Ratio Inference for IV, 112 Am. Econ. Rev. 3260 (2022).
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/3902