We study subvector inference in the linear instrumental variables model assuming homoskedasticity but allowing for weak instruments. The subvector Anderson and Rubin (1949) test that uses chi square critical values with degrees of freedom reduced by the number of parameters not under test, proposed by Guggenberger, Kleibergen, Mavroeidis, and Chen (2012), controls size but is generally conservative. We propose a conditional subvector Anderson and Rubin test that uses data-dependent critical values that adapt to the strength of identification of the parameters not under test. This test has correct size and strictly higher power than the subvector Anderson and Rubin test by Guggenberger et al. (2012). We provide tables with conditional critical values so that the new test is quick and easy to use. Application of our method to a model of risk preferences in development economics shows that it can strengthen empirical conclusions in practice.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics