A weighted average limited information maximum likelihood estimator

Jönköping University, IHH, Statistik 2023

Qasim, Muhammad

In this article, a Stein-type weighted limited information maximum likelihood (LIML) estimator is proposed. It is based on a weighted average of the ordinary least squares (OLS) and LIML estimators, with weights inversely proportional to the Hausman test statistic. The asymptotic distribution of the proposed estimator is derived by means of local-to-exogenous asymptotic theory. In addition, the asymptotic risk of the Stein-type LIML estimator is calculated, and it is shown that the risk is strictly smaller than the risk of the LIML under certain conditions. A Monte Carlo simulation and an empirical application of a green patent dataset from Nordic countries are used to demonstrate the superiority of the Stein-type LIML estimator to the OLS, two-stage least squares, LIML and combined estimators when the number of instruments is large.

2SLS; Endogeneity; Instrumental variables; LIML; Many weak instruments; Shrinkage estimator; Stein estimation; Probability Theory and Statistics; Sannolikhetsteori och statistik; Article in journal; info:eu-repo/semantics/article; text

10.1007.s00362-023-01485-2

English

UPE oai:DiVA.org:hj-62757
0000-0003-0279-5305
doi:10.1007/s00362-023-01485-2
ISI:001092166200001
Scopus 2-s2.0-85173791738
Local HOA;;911837
1416046587

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