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3 answers
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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 ...
Forgot the Jacobian's user avatar
7 votes
2 answers
160 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 ...
user avatar
7 votes
2 answers
1k 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 ...
Martin Van der Linden's user avatar
7 votes
0 answers
162 views

Is 2SLS asymptotically MLE?

$$y_i =\beta_0 +\beta_1 x_{1i}+\beta_2 x_{2i}+\varepsilon_i$$ Suppose $x_1$ is endogenous but $x_2$ is exogenous. We have two excluded instruments, $z_1$ and $z_2$. The first stage is: $$x_{1i} =\...
Michael Gmeiner's user avatar
6 votes
1 answer
4k 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, $...
Max Shang's user avatar
6 votes
2 answers
453 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 ...
kbry118's user avatar
  • 61
5 votes
1 answer
9k views

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,...
Tómas Bjarnason's user avatar
5 votes
1 answer
189 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 $x_1$....
user4354's user avatar
5 votes
1 answer
80 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 ...
Michael Gmeiner's user avatar
5 votes
1 answer
3k 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 ...
Antoni Parellada's user avatar
5 votes
1 answer
84 views

IV Regression with More Observations for First Stage than Second Stage

This is a very basic question, but I need help. Imagine I have a dataset for variables y, x, and z. I am running an instrumental variable regression such that y is my main outcome variable. So I am ...
Student in need's user avatar
5 votes
1 answer
147 views

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} ...
Student's user avatar
  • 153
4 votes
2 answers
93 views

Is my instrument too noisy?

I have an instrument, that I want to use with IV 2SLS, to predict my endogenous variable. The scatter plot of my instrument against my endogenous variable looks like this. Using Stata's binscatter, I ...
Xavi's user avatar
  • 41
4 votes
2 answers
273 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 ...
FARRAF's user avatar
  • 141
4 votes
1 answer
118 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. ...
user12623's user avatar
4 votes
0 answers
992 views

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 ...
Michael Gmeiner's user avatar
3 votes
2 answers
279 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 ...
Math is like Friday's user avatar
3 votes
1 answer
200 views

IV regression: first stage in logs, second stage in levels?

I have a regression in levels, derived from theory. I want to instrument one of the variables, but the best instrument I find has a weak correlation to the endogenous variable in levels, and a strong ...
Econ_User's user avatar
3 votes
1 answer
618 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?
Elias's user avatar
  • 31
3 votes
1 answer
64 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 ...
yurnero's user avatar
  • 193
3 votes
2 answers
1k 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 ...
Carlos Restituyo Vassallo's user avatar
3 votes
0 answers
155 views

How to visualize first-stage in IV regression?

I know what matters is the F-Statistic, but for a presentation it would also be nice to add a plot that visually shows the first stage. How to best visualize that? Say you have an outcome $Y$, ...
Papayapap's user avatar
  • 1,843
3 votes
0 answers
28 views

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 ...
kenxavierfractal's user avatar
2 votes
2 answers
745 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 ...
IV_question's user avatar
2 votes
1 answer
199 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 ...
ArOk's user avatar
  • 351
2 votes
1 answer
77 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. ...
Student's user avatar
  • 352
2 votes
2 answers
580 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\...
bbecon's user avatar
  • 688
2 votes
0 answers
43 views

Examples of instrumental variables for business problems (not rainfall!)

I have been learning about IV as a non-economist and I think I understand the examples I've seen which used rainfall as an IV for modeling the sales of crops or fish at an outdoor market. However, for ...
Arthur's user avatar
  • 131
2 votes
0 answers
318 views

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 ...
erik's user avatar
  • 721
2 votes
0 answers
22 views

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 ...
Wissenschaft's user avatar
1 vote
1 answer
62 views

Abadie's Kappa (2003) for continuous treatments / IVs

Does somebody know if there exist results and estimators to deal with controls in IV estimation under heterogeneous treatment effects, analogous to Abadie's Kappa (2003) for the binary case? Abadie, ...
Papayapap's user avatar
  • 1,843
1 vote
1 answer
161 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 ...
ThomasGuest's user avatar
1 vote
1 answer
392 views

Can I instrument an endogenous variable and its quadratic form with the instrument and its quadratic form?

I have the following problem, where I would like to have an advise or a reference: I'm estimating a model which usually (in other papers) only includes the explanatory variable in its linear form, but,...
Nacho's user avatar
  • 35
1 vote
1 answer
70 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 ...
Bazinga's user avatar
  • 155
1 vote
2 answers
77 views

Including Controls for Relevance Test in First Stage Regression of IV?

I am conducting an instrumental variable approach (IV) in my paper, and I am puzzled how to correctly test for the relevance / strength of the instrument assumption. I recently read in a paper by ...
Susn's user avatar
  • 21
1 vote
1 answer
42 views

What does it mean to "replace all variables with the residuals after projections on any additional exogenous regressors"

I am conducting IV Regression and to make sure that my instrument is not weak, I want to use Montiel Olea & Pflueger (2013) robustness test. (see: Paper by Montiel Olea & Plueger (2013) ). To ...
Susn's user avatar
  • 21
1 vote
1 answer
46 views

IV - Is this correct?

I have the following question. Currently I have an econometric model that uses an instrumental variable, particularly a Bartik instrument (which some people call shift-share). I'm proceding as Mayda ...
Nacho's user avatar
  • 35
1 vote
1 answer
27 views

Estimating parameters when introducing IV Instrument

Say, you have a model $$ y_{it} = \beta_1 a_{it} + \beta_2 b_{it} $$ And you find that $a_{it}$ is endogenous, therefore, you need to find an instrument for it. Say you find an instrument $z_{it} = \...
Zebraboard's user avatar
1 vote
1 answer
304 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,...
Duo's user avatar
  • 121
1 vote
1 answer
228 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 ...
Disha's user avatar
  • 11
1 vote
1 answer
482 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 ...
StatguyUser's user avatar
1 vote
0 answers
18 views

What's a classic (paper) example in which OLS gives unreasonable result, but IV estimate gives reasonable result?

I'm wondering are there are any classic papers, especially in the field of labor economics or development economics, that include regression tables showing OLS gives unreasonable result(like ...
ExcitedSnail's user avatar
1 vote
0 answers
159 views

Instrumental Variable: Bias & larger standard errors

Let's assume the instrument $Z$ satisfies instrumental exogeneity $corr(Z, \epsilon)=0$ and it's relevant $corr(Z, X_{end})≠0$. Where $\epsilon$ is error term and $X_{end}$ is the endogenous ...
dewewdew's user avatar
  • 105
1 vote
1 answer
47 views

Using an enrollment probability as an instrument

Can someone walk me through whether this makes sense? Individuals can apply to be enrolled in a treatment (a particular program), or not. The probability of actual enrollment for applicants varies ...
user1637004's user avatar
1 vote
0 answers
44 views

Adding industry dummies to 2SLS in R

for my Master Thesis I want to regress the ESG score on the stock price drop during the pandemic. For OLS this works fine. To check for potential Endogeneity I also conduct a 2SLS regression with the ...
Hirschbraten22's user avatar
1 vote
0 answers
36 views

Fuzzy RDD when individuals can affect the probability of treatment

I want to evaluate the effect of getting into a program on earnings. In my case individuals that get a score above $c$ can decide weather to get into the program or not. On the other hand those that ...
Giorgetto's user avatar
  • 223
1 vote
0 answers
806 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 ...
Colette Salemi's user avatar
1 vote
0 answers
41 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, ...
Anna's user avatar
  • 111
1 vote
0 answers
59 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 $...
Yuanchen Li's user avatar
1 vote
0 answers
39 views

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 ...
C. Hansen's user avatar