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Questions tagged [instrumental-variable]

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Solving correlation between explanatory variables using instrumental variables in economic production function

I am currently stuck on a task where I am interested in estimating the production function for agricultural output as follows: \begin{equation} y_{i} = x_{i}\beta + \alpha_i + \epsilon_{i} \end{...
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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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How to find a new instrumental variable

I want to replicate the econometrics analysis from the paper by Autor, Dorn and Hanson (2013): The China Syndrome: Local Labor Market Effects of Import Competition in the United States http://...
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1answer
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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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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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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
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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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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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Most influential papers that use rainfall (or weather) as instrumental variables

Any field, must be replicable. Simpler the better. Looking for papers that attempt to estimate a local average treatment effect of an endogenous variable on some outcome, where the endogenous ...
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1answer
63 views

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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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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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
361 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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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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138 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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415 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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275 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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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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558 views

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
138 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 $x_1$....