Wild Bootstrap Tests for IV Regression

We propose a wild bootstrap procedure for linear regression models estimated by instrumental variables. Like other bootstrap procedures that we proposed elsewhere, it uses efficient estimates of the reduced form equation(s). Unlike the earlier procedures, it takes account of possible heteroscedasticity of unknown form. We apply this procedure to t tests, including heteroscedasticity-robust t tests, and to the Anderson-Rubin test. We provide simulation evidence that it works far better than older methods, such as the pairs bootstrap. We also show how to obtain reliable confidence intervals by inverting bootstrap tests. An empirical example illustrates the utility of these procedures.