Abstract:

Weak instruments arise when the instruments in linear instrumental variables (IV) regression are weakly
correlated with the included endogenous variables. In generalized method of moments (GMM), more
generally, weak instruments correspond to weak identification of some or all of the unknown parameters.
Weak identification leads to GMM statistics with nonnormal distributions, even in large samples, so that
conventional IV or GMM inferences are misleading. Fortunately, various procedures are now available
for detecting and handling weak instruments in the linear IV model and, to a lesser degree, in nonlinear
GMM.