How Accurate Can Instrumental Variable Models Become?


This chapter presents and discusses various aspects of what theory predicts in terms of accuracy of instrumental variable estimates. A general derivation of the covariance matrix of the parameter estimates is presented. This matrix is influenced by a number of user choices in the identification method, and it is further discussed how these user choices can be made in order to make the covariance matrix as small as possible in a well-defined sense. The chapter includes also a comparison with the prediction error method, and a discussion of in what situations an optimal instrumental variable method can be statistically efficient.


Covariance Matrix Instrumental Variable Less Square Estimate User Choice User Parameter 
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© Springer-Verlag London Limited 2012

Authors and Affiliations

  1. 1.Division of Systems and Control, Department of Information TechnologyUppsala UniversityUppsalaSweden

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