CFDP 1984R3

Unbiased Instrumental Variables Estimation under Known First-Stage Sign


Publication Date: February 2015

Revision Date: October 2015

Pages: 36


We derive mean-unbiased estimators for the structural parameter in instrumental variables models with a single endogenous regressor where the sign of one or more first stage coefficients is known. In the case with a single instrument, the unbiased estimator is unique. For cases with multiple instruments we propose a class of unbiased estimators and show that an estimator within this class is efficient when the instruments are strong. We show numerically that unbiasedness does not come at a cost of increased dispersion in models with a single instrument: in this case the unbiased estimator is less dispersed than the 2SLS estimator. Our finite-sample results apply to normal models with known variance for the reduced-form errors, and imply analogous results under weak instrument asymptotics with an unknown error distribution.

Supplemental material

Supplement pages: 28


Weak instruments, Unbiased estimation, Sign restrictions

JEL Classification Codes: C26, C36