Questions tagged [instrumental-variable]

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Can current value of left hand side of a simultaneous equation be an instrument?

Inflation and output gap are endogenous variables in this regression. Can $r_t$ be an instrument? I know the lags can, but it is the first time I am seeing the current value of the left-hand side ...
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40 views

C-statistic when one estimation is just identified

My question is motivated by Do, Joshi, and Stopler's paper "Can Environmental Policy Reduce Infant Mortality? Evidence from the Ganga Pollution Cases". A simplified form of their models that ...
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Kleibergen Paap F-statistic

I have commonly seen references to a Kleibergen and Paap F-statistic. In their paper, I see a derivation of a chi-squared statistic, but don't see any references to the F-distribution or F-stat. In ...
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Difference between AR confidence intervals reported in weakiv versus twostepweakiv

Should the Anderson-Rubin confidence intervals reported in weakiv and twostepweakiv be equal to each other? Sun (2018) does not ...
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1answer
109 views

IV estimate for entire sample is larger than IV estimates for subsets of sample?

I am using two-stage least squares to estimate a local average treatment effect, with 'treatment' being the endogenous variable and 'assignment to treatment' being the instrument. If I use my full ...
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Advice on research methodology

I had wanted to ask this community for some advice on some potential methodologies I am developing. Context: I want to evaluate the effectiveness of a component of this scholarship program, which ...
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1answer
48 views

Is exogeneity guaranteed for a lottery-generated instrumental variable?

If using $z$ as an instrument for $x$, to study the effect $x$ has on $y$ and given that $z$ was indeed generated through a lottery, is it definite that exogeneity of $z$ will hold? I have looked at ...
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72 views

How should I regress income inequality on economic growth?

I would like to know which variables to use to regress income inequality on economic growth. For income inequality, I am thinking of using the Gini index, but don't know what measurement exactly. For ...
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Verification of logic behind instrumental variable approach

I would like to know whether the following reasoning regarding the instrumental variable approach is acceptable. I understand there are case-by-case factors that affect the applicability of ...
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1answer
52 views

Interacting covariates with the instrument in the first stage

If I want to run a 2 stage least squares (2SLS) regression with: Relationship of interest: $Y = \alpha + \beta X + \varepsilon $, where $X$ is the endogenous explanatory variable of interest. If I ...
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1answer
52 views

Why do we need at least as many instrumental variables as endogenous regressors to identify parameters in 2SLS?

As the title says. Why do we need at least as many instrumental variables as endogenous regressors to identify parameters?
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Instrumental variable regression: How many interpretations?

I was reading Amemiya "Non-linear regression models" (1983) in which he says that This statement should not be construed as a criticism of Theil's interpretation. I know of at least six ...
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The instrument in "The Colonial Origins of Comparative Development"

I am hoping to understand when an instrument is appropriate. For the purposes of this question, I'm considering a simplied version of the model in AJR (2000): $$\begin{aligned}\text{GDP} &\sim \...
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1answer
15 views

Using dependent variable's and exogenous variables' lags as instruments in 2SLS

Suppose we have the following structural equations: $$y=\beta_0+\beta_1x+\beta_2z_z+\beta_3z_3+\epsilon,$$ where $x$ is the endogenous variable and $z_1,z_2$ are exogenous variables. In the literature,...
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How to calculate and interpret a marginal treatment effect (local instrumental variable)? (Intuition through simple example.)

I am working on the intuition behind local instrumental variables (LIV), also known as the marginal treatment effect (MTE). I have worked some time on this and would benefit from solving a simple. I ...
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2answers
101 views

What does it mean if the controls in my IV model are correlated with my instrument?

I am seeking to understand what it means for my 2SLS IV model if my controls are correlated with my instrument (such that when I add additional controls to my model that are positively correlated with ...
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27 views

Stata's "ivregress 2sls" command - generating F-stats to test for weak instrument

I am transitioning to using the "ivregress 2sls" command in Stata for IV estimates. I've been trying to produce F-statistics to test for whether the instrument is weak. I believe that the ...
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1answer
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Skepticism about the claims of instrument variable validity/exclusion through a statistical test—the Arellano-Bond Test

I am an applied researcher and occasionally come across papers that have panel data and that use dynamic models with both a fixed-effects term and lagged DV (or multiple autoregressive terms): $y_{it} ...
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2answers
91 views

is endogeneity a problem in the first-stage regression in a two-stage least square regression?

We have this model: $$D=\alpha_1+\gamma_1 Z + \epsilon_1$$ $$Y=\alpha_2+\gamma_2 D + \epsilon_2$$ Notations are as usual: Y is the outcome, D is the treatment, Z is the instrument Two conditions for ...
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1answer
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Why are my 2SLS estimates much larger than my OLS estimates?

When performing IV regression, it is often taken as a sign of unbiasedness if the IV estimates are similar to the OLS estimates of the same model. My question is: If the estimates are very different,...
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35 views

Weak Instrument - Stock and Yogo

I have the following structural equations where $G,Z$ are endogenous and $X,Y$ are exogenous $$ G_d=B_0+B_1Z+B_2X+u_1\\ G_s=a_0 +a_1Z+a_2Y+u_2 \\ G_d=G_s $$ Now, I would like to perform 2SLS, thus, ...
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2answers
149 views

Some confusions about instrumental variable (econometrics)

As the title says, I have some confusions about instrumental variable. According to my lecture note (which is supposed to be reliable), instrumental variable has two big properties: Validity: an ...
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1answer
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Is it reasonable, in panel data, to use past values of explanatory variables as instruments to deal with simultaneous causality?

I am trying to examine the determinants of economic growth, essentially regressing a number of variables upon economic growth. I face a problem that there is likely simultaneous causality between many ...
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1answer
55 views

Testing for weak instrument

I have 3 endogenous variables in my model and I have identified 3 (or max 4) instruments. I wanted to know appropriate test for identifying whether the instruments are weak or not given that I have ...
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47 views

instrumental variables

I have a question related to IV methods. Suppose I have a regression $Y = a + b_1 X_1 + b_2 X_2 + \epsilon$, where $Y$ is a dependent variable and $X_1$ is an endogenous independent variable and $...
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1answer
54 views

Imbens and Angrist (1994): the $D_i(z)$ variables

I'm referring to the Econometrica (1994) paper by Imbens and Angrist. In particular, I don't really understand the random variables $D_i(z)$ (defined on page 468). Could you please provide me with ...
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1answer
52 views

Validity condition for Instrumental Variables

My professor states the validity condition in the following way: $W$ (the matrix of instrumental variables) must be such that $ \text{plim} \, \frac{W'u}{N}=0$, where $u$ is the error term. ...
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1answer
2k views

Confounding versus endogenous variables. What is their relative hierarchical position?

There are valuable resources on the lexicon of types of variables quickly accessible, such as here. However, some of these concepts appear side-by-side often enough to make them confusing. For ...
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212 views

Instrumental Variable Paper for Minimum Wage

I am trying to write a paper dealing with minimum wages and employment. I understand there is simultaneity bias between these two variables so I must come up with an instrument. Does anyone have any ...
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Using an instrument in IV that is not strictly exogenous to the variable it is instrumenting?

I am considering instrumenting HIV with ODA, to evaluate the impact of HIV on gold mining. There is a clear relationship between HIV and ODA, however it may easily be argued this is an endogenous ...
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1answer
89 views

Difference between $x$ and $X$

Sorry for my bad english, i'll try to explain my difficulty. 1° Question In the last exam an exercise asked to derivate OLS estimators and calculate their value with the data provided (ex.: $\sum ...
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2answers
483 views

Testing for Endogeneity

I apologize if this question is very basic. I have the following plain vanilla Instrumental Variable model. $Y=\alpha+X\beta+\varepsilon$ $X=\delta+Z\gamma+\eta$ $\varepsilon\perp\eta,\quad Z\perp\...
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2k views

Can you use more than one instrumental variables in an Econometric model?

Can you use two instrumental variables $z_1$ and $z_2$ at the same time for $x_1$ and $x_2$, in the following regression model $y=a+bx_1+cx_2+dX_{other}+e$, where $y$ is the explained variable, $...
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1answer
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Testing if one regressor is a proxy for another

I'm reading Guiso, Sapienza and Zingales: "Trusting the Stock Market" The Journal of Finance, Vol. 63, No. 6, 2008 and have a question about how they test whether trust is a proxy for risk aversion. ...
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415 views

How to test if variables are jointly determined?

If I wanted to test, for example, if consumption growth and credit growth are jointly determined, and therefore justifying the use of instrumental variables, how would I go about this? Would running a ...
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3answers
19k views

What is the difference between two stage least squares and instrumental variable regression?

I'm doing independent study and I am having trouble understanding the difference between these two estimators. I get that 2SLS is predicting the endogenous variable, and that instrumental variables ...
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1answer
414 views

IV:Quasi-random variance V.S. 'Placebo' check

I read some papers about transportation infrastructure. I am confuse with the following two case. Some routes are unlikely to have been randomly assigned across cities over time. Thus, In some papers(...
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69 views

Trouble Deriving Indentification Scheme in Gertler-Karadi (2015) AEJ

I'm having trouble following a derivation that Gertler-Karadi (2015) AEJ http://pubs.aeaweb.org/doi/pdfplus/10.1257/mac.20130329 do in their paper on Footnote 4 on the bottom of page 52. I've tried ...
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151 views

Using another person's guess as an IV

In Estimates of the Economic Return to Schooling from a New Sample of Twins by Orley Ashenfelter and Alan Krueger, they correct sampling error with an IV. They claim that their results imply a larger ...
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805 views

How to justify an instrumental variable?

I am hoping for some tips on what I could do for a term paper in applied econometrics. We are running a 2sls where I want to use a firm's location as an IV. How can I go about justifying it is a valid ...
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419 views

Which regression technique is used for calculating price elasticity in practice

Since we need to consider 'Endogeneity' between price and quantity while calculating price elasticity and since linear regression cannot handle the phenomenon of endogeneity if objective of the model ...
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127 views

Using an interaction term as the instrument (as in Barro QJE (2011))

I recently came across Barro and Redlick QJE (2011) paper, "Macroeconomic Effects from Government Purchases and Taxes", in which the authors instrument for defense spending with an interaction term ...
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Best instruments for "years of schooling"/"education"

As an answer to question “Seminal papers that later were proven to contain errors”, @snoram mentioned Angrist and Krueger (1991), and there use of quarter of birth as an (exogenous) instrument for ...
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1answer
169 views

IV - Is this procedure valid?

I have three variables: $y$, $x_1$ and $z$. I'm interested in finding the effect of $x_1$ on $y$. Unfortunately $x_1$ is endogenous so I use an instrument z. I know that $z$ is correlated with $x_1$....