Work

Valid t-ratio Inference for IV

Year: 2020

Type: preprint

Abstract: In the single IV model, current practice relies on the first-stage F exceeding some threshold (e.g., 10) as a criterion for trusting t-ratio inferences, even though this yields an anti-conservative test. We show that a true 5 percent test instead requires an F greater than 104.7. Maintaining 10 as a threshold requires replacing the critical value 1.96 with 3.43. We re-examine 57 AER papers and find that corrected inference causes half of the initially presumed statistically significant results to be insignificant. We introduce a more powerful test, the tF procedure, which provides F-dependent adjusted t-ratio critical values.

Source: RePEc: Research Papers in Economics

DOI: 10.48550/arxiv.2010.05058

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

Institutions: National Bureau of Economic Research, Princeton University, Columbia University, Escola Brasileira de Economia e Finanças, Fundação Getulio Vargas, University of Wisconsin System, University of Wisconsin–Madison

Language: English

Topic: Advanced Causal Inference Techniques

Subfield: Statistics and Probability

Field: Mathematics

Domain: Physical Sciences

Open Access status: green

OpenAlex ID: W3196559366

Cites:

Cited by: 3

Related to: 5