The bias of the 2SLS variance estimator

Ln simultaneous equation models the two stage least squares (2SLS) estimator of the coefficients, though consistent, is biased in general and the nature of this bias has given rise to a good deal nf research. However, Little if any attention has been given to the bias that arises when an estimate of the asymptotic variance is used to approximate the small sample variance. In this paper we use asymptotic expansions to show that, in general, the asymptotic variance estimator has an upwards bias. (C) 2000 Elsevier Science S.A. All rights reserved.