Valid t-ratio Inference for IV
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.
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Copy CitationDavid S. Lee, Justin McCrary, Marcelo J. Moreira, and Jack R. Porter, "Valid t-ratio Inference for IV," NBER Working Paper 29124 (2021), https://doi.org/10.3386/w29124.Download Citation
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Published Versions
David S. Lee & Justin McCrary & Marcelo J. Moreira & Jack Porter, 2022. "Valid -ratio Inference for IV," American Economic Review, vol 112(10), pages 3260-3290. citation courtesy of 
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