Consider a model with one endogenous regressor and two instruments. Then the J-statistic will be large
A)if the number of observations are very large.
B)if the coefficients are very different when estimating the coefficients using one instrument at a time.
C)if the TSLS estimates are very different from the OLS estimates.
D)when you use homoskedasticity-only standard errors.

Question

Quizplus · Accepted Answer

The J-statistic, in the context of instrumental variables estimation, tests the overidentifying restrictions and is large when the instruments are not valid. If the coefficients are very different when estimating with one instrument at a time, it suggests that the instruments do not identify the same structural parameter, indicating potential invalidity of at least one instrument, hence a large J-statistic.

Consider a Model with One Endogenous Regressor and Two Instruments