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NONPARAMETRIC INSTRUMENTAL REGRESSION WITH ERRORS IN VARIABLES

  • Karun Adusumilli (a1) and Taisuke Otsu (a1)
Abstract

This paper considers nonparametric instrumental variable regression when the endogenous variable is contaminated with classical measurement error. Existing methods are inconsistent in the presence of measurement error. We propose a wavelet deconvolution estimator for the structural function that modifies the generalized Fourier coefficients of the orthogonal series estimator to take into account the measurement error. We establish the convergence rates of our estimator for the cases of mildly/severely ill-posed models and ordinary/super smooth measurement errors. We characterize how the presence of measurement error slows down the convergence rates of the estimator. We also study the case where the measurement error density is unknown and needs to be estimated, and show that the estimation error of the measurement error density is negligible under mild conditions as far as the measurement error density is symmetric.

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*Address correspondence to Taisuke Otsu, Department of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, UK; e-mail: t.otsu@lse.ac.uk.
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The authors would like to thank three anonymous referees and a co-editor for helpful comments. Otsu gratefully acknowledges financial support from the ERC Consolidator Grant (SNP 615882).

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Econometric Theory
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