Instrumental variables (IV) are used for causal inference with observational data in the presence of endogeneity when standard regression methods yield biased and inconsistent estimates.

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2SLS but second stage Probit

I am trying to use instrumental variables analysis to infer causality with observational data. I have come across a two-stage least squares (2SLS) regression which is likely to address the endogeneity ...
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20 views

Consistency of 2SLS with Binary endogenous variable

I have read that 2SLS estimator is still consistent even with binary endogenous variable (http://www.stata.com/statalist/archive/2004-07/msg00699.html). In the first stage, a probit treatment model ...
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10 views

quadratic endogenous variables in R

As part of ongoing research I'm to test a certain model on some data. One of the questions asked (c.f. one of the hypotheses) involves estimating the quadratic term of an independent variable (in R). ...
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14 views

PANEL model (MCMC): Equivalent of system GMM in MCMC

I want to fit a PANEL model via MCMC. I am concerned, that I got some covariates that are endogenous. I use MCMC for various reasons, particularly cause I got some spatial dependencies in my model. I ...
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41 views

Can the endogenous variable be insignificant while the instrument is significant?

I suspect that this is entirely possible since the endogenous variable coefficient can biased in many possible way, thus leading to a near 0 estimate despite having a real causal relationship. More ...
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40 views

Using predicted probabilities as regressors

I am working on a project where I investigate growth in wages due to migration. I correct for the endogeneity in the decision to migrate (only those that are most likely to gain from migration will ...
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19 views

R ivreg command vs. manual 2-stage method

What is the difference between the ivreg command in R and doing the IV regression by hand in two stages? The estimate is the same, but the standard error is not the ...
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111 views

Instrumental Variable Interpretation

I have an explanatory variable, 'social class' which I am trying assess the effect on a child's test score. Social class is a 6 fold categorical that breaks down based upon the parent's occupation - ...
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28 views

How to estimate model where instrument is correlated with dependent variable

I have the following problem: I would like to estimate the effect of price variation caused by uncertainty on an outcome variable. P is my price, X is the variable measuring uncertainty and Y is the ...
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68 views

Variance of Beta IV

I'm trying to calculate the variance of the Instrumental Variables (IV) estimator $${\hat \beta _{IV}} = {\left( {{Z^T}X} \right)^{ - 1}}{Z^T}y = \beta + {\left( {{Z^T}X} \right)^{ - 1}}{Z^T}u$$ (or, ...
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78 views

Assessing strength of instrument

I want to use a risk score (RS) as an instrument for an exposure on a clinical outcome. However, I wont have access to data on the outcome for some time, and wish to examine whether this risk score ...
2
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54 views

Rewrite instrumental variables estimator into formula with covariances?

In the book Microeconometrics of Cameron and Trivedi, they write the IV estimator as $\widehat{\beta}_{IV} = \frac{Cov[z,y]}{Cov[z,x]}$, formula (4.49) on p. 99. They say that they derived this from ...
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89 views

2-stage panel model - am I doing it right?

I ran a 2-stage fixed-effects panel model in R. The goal is to find the effect of strategic alliance participation on firm performance. Alliance participation is not random - firms self-select (and ...
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Proving the LATE Theorem of Angrist and Imbens 1994

Assume we have a binary instrument $Z_i$ which can be used to estimate the effect of the endogenous variable $D_i$ on the outcome $Y_i$. Suppose the instrument has a significant first stage, it is ...
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1answer
124 views

OLS vs IV estimates - Sign and Significance

Assume I have an equation with 1 endogenous variable, and many other exogenous variables. Also assume I have 2 valid instruments for the endogenous variable for IV estimation. If I were to estimate ...
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30 views

$J$ statistics to $p$-value of $J$ statistics an vice versa

I am not entirely sure if I should ask this question here, but does EViews has a function of converting J statistics to p-value of Jstats, or other way around. I am running several GMM estimations ...
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66 views

J stat problem, GMM

I have recently performed a GMM estimations, my problem is that all the J-stats are 0.0000. It means that the IV are overrefined right or the model is not well specified. I used one-period lags of the ...
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3answers
120 views

Endogeneity & IV = model misspecification?

I'd like to raise a controversial point: if you need instrumental variables, your model is wrong. Basic endogeneity problem and the IV solution Let us suppose the basic framework of endogeneity and ...
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108 views

Practical issues with dynamic panel data modeling

Unfortunately for me, I've got a situation where I need to control for the lag of a dependent variable as a robustness check against an alternative interpretation of my main regression. The baseline ...
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535 views

Interpreting significance of Cragg-Donald F-Statistic for weak instruments

I have a first-stage F value of 9 for a model with 1 instrument and 1 endogenous variables, the mechanical rule of thumb of 10 would say my instruments are weak. However, I am reading the 2005 paper ...
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131 views

IV-RE xtoverid testing both IV validity and RE vs FE?

I am running an xtivreg, re and an xtoverid afterwards. My understanding of the help file and what I found online is that ...
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1answer
69 views

IV and Exogeneity Tests

Read something about the Hausman test that didn't sound right in some grad course handout online. It stated that the Hausman null of OLS and IV not being statistically different, if not rejected, ...
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112 views

Basic Instrumental Variables Dummy Variable question

I have been reading Mostly Harmless Econometrics and have been won over by the virtues of splitting my instrument into groups. In particular, I have a continuous variable as an instrument representing ...
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Dynamic Panel/GMM in R with group:time fixed effects?

Is there a solution coded in R to estimate models of the form $$ y_{igt} = \alpha_i + P_{gt} + \beta_1y_{igt-1}+ \beta_2y_{igt-2} + X_{igt}'\gamma + \epsilon_{igt} $$ ?? ...
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More than one function of a single instrumented endogenous variable — is the model still underidentified?

The typical instrumental variable setup seeks a consistent estimate of $\beta$ from $$ y = \alpha + \beta x + \epsilon $$ where $cor(x,\epsilon) \neq 0$, in the univariate case, without loss of ...
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165 views

Basic 2SLS IV Questions in Stata

(1) If I believe my instrument is exogenous conditional upon a few exogenous variables, do I include them only in the first stage? I.e. would the command be: ...
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80 views

Instrumental Variables for Logistic Regression

I am trying to regress a Ratio variable,Y, on an independent variable,X; Variable X is endogenous, so I have to use an Instrumental Variable, Z; both X and Z are continues variables. How can I run ...
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77 views

Great examples of instrumental variable estimators

This is a great example of the instrumental variable estimator: https://www.youtube.com/watch?v=NLgB2WGGKUw In our course however they stay really vague about examples, and to be honest, we really ...
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53 views

Can you use a moving average as an instrumental variable?

I have panel data and am interested in changes in total expenditures. I would like to consider an instrumental variable approach to deal with an endogenous regressor – the short run elasticity of ...
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81 views

Endogeneity & IV

Consider the the following structural model: $y=\beta_1x_1+\beta_2x_2+u$ where $u$ is an iid disturbance term. Suppose $E(u|x_1)=0$ but $E(u|x_2)\neq 0$.For $z_2$ to be a valid instrument, it must ...
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200 views

Can I use outreg (or outreg2) in Stata to output first stage least squares?

I'm using Stata to analyze my panel data. I run several fixed effects regression with instrument variables and I'd like to output the first stage and second stage least squares to Excel and Latex ...
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74 views

IV Probit in R?

Stata has the very useful command ivprobit. For example: ...
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657 views

Literature on IV quantile regression

In the last months I have read intensively about quantile regression in preparation for my master thesis this summer. Specifically I have read most of Roger Koenker's 2005 book on the topic. Now I ...
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25 views

Optimal non-linear IV estimator

I know that the feasible optimal GMM estimator is consistent and asymptotically efficient. I also know that the fully-parametric MLE estimator is more efficient than GMM provided that we know the ...
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63 views

Simulating a bimodal biased IV estimator

How can I simulate a bimodal biased IV estimator? The common unimodal heavy-tailed biased estimator would be something like this: ...
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50 views

Estimating finite sample bias for Instrumental Variables

Are there ways to estimate the finite sample bias with instrumental variables? I guess this would be conditional on assuming some structure to the problem and also would involve simulation, but, at ...
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970 views

probit two stage least squares

I was told that it's possible to run a 2 stage iv regression where the first stage is a probit and the second stage is an OLS. Is it possible use 2sls if the first stage is a probit but th second ...
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Standardized coefficients and IV method

In a multivariate regression, suppose we want to calculate the metric coefficients from the standardized ones. Is the method (standardized coeffcient times standard deviation of the dependent ...
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30 views

MLE or instrumental variables

I'm trying to estimate a model in which one of the explanatory variables is correlated with the error term. As I see it there are two alternatives, specify the likelihood function and maximize it to ...
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196 views

How do instrumental variables address selection bias?

I'm wondering how an instrumental variable addresses selection bias in regression. Here's the example I'm chewing on: In Mostly Harmless Econometrics, the authors discuss an IV regression relating ...
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93 views

2-stage Heckman instrumental variable estimation

I am working on my thesis. My main regression model is the following: $Y=x_1*{\rm Payment}+x_2*{\rm Country}+x_3*{\rm Industry}...$ All independent variables are dummy / binary variables. In a next ...
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Estimated standard errors for weak instrumental variable

I would like an explanation on the statement in bold below. At first glance, I'd think that a weak instrumental variable would yield a even bigger standard error estimate. "When instruments are ...
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How to run a instrumental variable regression for the dependent variable

probably a very stupid question but I did not find any solution so far: I would like to test the following: If performance was bad in t-1 ($per_{t-1}$), then managers increase risk ($\Delta risk_t$) ...
3
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1answer
100 views

Optimal weighting matrix instrumental variables estimator

The formula for the optimal weighting matrix when you perform regression with more instrumental variables than endogenous predictors is the following: $W_{opt} = (\frac{1}{N}Z'Z)^{-1} $ This tells ...
2
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1answer
132 views

Testing for weak instrument: include intercept in regression of instrument?

When you want to use the IV (instrumental variable) estimator, you typically first test if you have a strong instrument. You do so by regressing the (endogenous) predictor against the instrument. ...
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170 views

Testing “weak” instruments - F test

I would like to address the endogeneity problem in my model. Let me go step by step. I have panel data for 19 countries, 1995-2010. My regression model: ...
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38 views

Adjusting regression for correlated errors-in-variables

I have a set of data points $\{x_i\}$. These data points are grouped so that (say) $i\in\{1,2,3\}$ is group $A$, $i\in\{4,5,6,7\}$ is group $B$, etc. I would like to test the null hypothesis of no ...
3
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2answers
109 views

How do you determine if an instrumental variable is randomly assigned?

For an IV to be valid, it must be: Randomly assigned Correlated with the endogenous variable in the model Uncorrelated with the dependent variable in the model What does the random assignment of ...
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78 views

Use of different outputs in a meta-analysis?

I'm interested in performing a meta-analysis of instrumental variables analyses from a handful of different studies, asking for the same set of model results from all study investigators. However, at ...
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IV (2SLS) with ordered/binary dependent and endogenous variable

thanks for taking time to read this first of all. I am looking for an IV procedure if the endogenous variable is binary or ordinal (0 to 5). I see the problem of using 2SLS if the endogenous variable ...