No. 911: Time-Varying Instrumental Variable Estimation

Luidas Giraitis , Queen Mary University of London
George Kapetanios , King's College London
Massimiliano Marcellino , Bocconi University

August 17, 2020

Download full paper

Abstract

We develop non-parametric instrumental variable estimation and inferential theory for econometric models with possibly endogenous regressors whose coefficients can vary over time either deterministically or stochastically, and the time-varying and uniform versions of the standard Hausman exogeneity test. After deriving the asymptotic properties of the proposed procedures, we assess their finite sample performance by means of a set of Monte Carlo experiments, and illustrate their application by means of an empirical example on the Phillips curve.

J.E.L classification codes: C14, C26, C51

Keywords:Instrumental variables, Time-varying parameters, endogeneity, Hausman test, Non-parametric methods, Phillips curve.