Selecting instrumental variables based on simulated annealing algorithm
Hu Yuanjia · Systems Engineering - Theory & Practice · 2014
Instrumental variables estimation provides a general solution to the problem of an endogenous explanatory variable,but the finite sample properties of instrumental variable estimators are sensitive to the choice of instruments.In recent years,several approaches based on minimizing the approximate mean square error have been proposed in the literature for the models with many instruments.However,these methods either depend on the order of the instruments or are limited by the number of instruments.In this paper,the selection method of instruments based on simulated annealing algorithm is proposed to solve these problems.Monte Carlo simulations have demonstrated the effectiveness of the proposed algorithm.