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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Appropriate Instruments

My model is: $$Y=\beta_0+\beta_1X_1+\beta_2X_2+\beta_3X_3+\beta_4X_4.$$ I want to check if 'weather' (not included in the above model) is an appropriate instrument. $X_1$ represents price. If I ...
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Is it valid to instrument endogenous variables one at a time?

I am a Stata user and am attempting to implement the IV Quantile regression method of Chernozhukov and Hansen (2008), for my model, which has two endogenous variables, call them "GD" and "ED". I am ...
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Simultaneous Equation Model (SEM): is the following system identified?

$Y_1 = \alpha_0 + \alpha_1 Y_2 + \alpha_2 Y_3 +\alpha_3 X_1 + \alpha_4 X_2 + u_1 \quad (1)$ $Y_2 = \beta_0 + \beta_1 Y_3 + \beta_2 X_2 + u_2 \quad (2)$ $Y_3 = \gamma_0 + \gamma_1 Y_2 + u_3 \quad ...
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Using an interaction term as the instrument variable

I recently came across Barro and Redlick QJE (2011) paper, "Macroeconomic Effects from Government Purchases and Taxes", in which the authors instrument for US defense spending with an interaction term ...
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Simultaneous equations with instrumental variables

I am trying to estimate the simultaneous equations model with instruments in STATA. I have two equations such as: ...
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81 views

What can go wrong using lagged terms as instrumental variables?

Can anybody give one example of when the set of all lagged $X$ can (or can't) be a good choice of IV's for $X_{t}$?
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Endogeneity in censored data

I estimate Instrumental Tobit using Newey’s (1987) minimum chi-squared estimator. My question is whether I can use lagged values of the endogeneous regressors as internal instruments for the ...
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Same instruments with different impact on multiple endogenous regressors

I have a regression containing 2 binary endogenous (X1 and X2) regressors. I have 2 instruments (Z1 and Z2), where both Z1 and Z2 have a significant positive effect on X1 and a significant negative ...
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Multiple exogenous IV 2sls in Stata

In my model I have two exogenous variables which I want to use as instruments. Can you please help me with Stata code for it? I assume it should be something like this: ...
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24 views

How do weak instruments violate full rank condition?

So I know that if the instruments $(Z_i)$ in 2SLS regression are weak i.e. $X_i$ and $Z_i$ are uncorrelated, then full rank condition for matrix $\Sigma_{ZX}=E[Z_iX_i]$ will fail to hold, but how can ...
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how to explain instrumental variables to a layman

I am giving a talk to a group that contains both quantitative and qualitative researchers, but most of the quants' understanding stops at crosstabs and regression. Does anyone have any ideas which ...
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Questions on IV (2sls) model with cross section data

I want to test cross sectional data with a household survey with 60k plus of respondents (however missing data result in overall data loss). The survey asks questions that answer either 0 or 1 or are ...
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Instrumental variable changes significance of other regressors

I have a linear regression:I am regressing price index and price volatility on some number of conflict events (dependent variable). Looking for a causal relationship between price index and number of ...
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44 views

Stata: How to carry out System-GMM estimation for Dynamic Panel Data

I am using Stata 13 to estimate a Dynamic Panel Data with the System GMM. I would like to use the second lags of variables (both dependent and independent variables) as instrument for the difference ...
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When is an instrumental variable approach necessary?

Here is a follow-up question to "Instrument testing for multinomial endogenous variable and multinomial outcome." In Country X, health insurance enrollment depends on either the household member's ...
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Instrument testing for multinomial endogenous variable and multinomial outcome

I need to manually test the validity of instruments (IVs) for the following model: $Provider_{ij}=\beta_0+\beta_1Insur1_{ij} +\beta_2Insur2_{ij} +\beta_3Insur3_{ij}+\beta_4Insur4_{ij}+X\beta + Y\delta ...
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model estimation with feedback loop in variables

I have the following problem regarding fitting of a model where some variables can be biased so that their values are based on knowledge or at good guestimate of $Y$ in the past. In other words: some ...
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Causal inference designs and research questions

Consider the following two research questions from Heckman, 2006: P.1 Forecasting the impacts (constructing counterfactual states) of interventions implemented in one environment in other ...
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What is the result of violated exclusion restrictions?

I have a question regarding exclusion restrictions in instrumental variable design. If I have an instrumental variable, which is also somewhat related to the outcome, would that (and how) cause ...
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What does it mean when least squares and instrumental variables give similar results?

What can said when for some data set the result of a least squares regression is extremely close to the result of an instrumental variable regression?
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2sls IV with different unit of observation - Stata

I am doing some data analysis on Stata on a big sample and it turned out it might be useful to use an IV approach. My data are on two levels: individuals and groups. The group level is obtained ...
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63 views

IV regression, endogeniety and Wu-hausman question

We have the model: $HOURS = \beta_1 + \beta_2 ln(WAGE) + \beta_3EDUC+ \beta_4AGE + \beta_5KIDSL6 + \beta_6KIDSL618 + \beta_7NWIFEINC + e$ Does anyone know why using some variables as instruments ...
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Why do different instrumental variabless used for the same endogenous variable give different estimates?

Suppose I am interested in studying the effect of schooling on earnings. I have two valid IVs for schooling namely: distance of residence from school, and quarter of birth. I use each ...
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Weak first stage in 2SLS

I have a simple IV model with 1D variables: $N = \alpha_z + \beta_z Z + \epsilon_z$ $S = \alpha_s + \beta_s N + \epsilon_s$ $N$ is an integer, while $S$ is dummy. $Z$ is by construction ...
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84 views

2SLS for sales data (problem with IV)

I am given a task to perform an analysis on marketing data and to find out if the prices for the products and marketing budget are set correctly. In order to do it, I need to find a suitable model ...
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Consistency of GMM/LIML IV in presence of endogenous binary variable

From what I've read, 2SLS with 1st stage probit for the binary variable will result in inconsistency, this is the so-called "forbidden regression". This problem is adressable, but that's not what I'm ...
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How do we know if using IV model is more efficient than OLS?

What are we looking for when we want to determine which model is most efficient? In my course slide they often discuss which model is most efficient, but I don't really know what they are looking and ...
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Quantile instrumental variable models (Chernozhukov and Hansen)

I am trying to implement a quantile IV model, and I must confess that I'm not fully familiar (read: comfortable) with the theory, although I have read the Chernozhukov and Hansen paper. However, the ...
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136 views

Using IV Probit in Stata

I am trying to estimate an IV model where my dependent variable is on the 0-1 scale, which is why I want a Probit estimator. However, my independent variable is a continuous, endogenous variable. For ...
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67 views

2SLS with endogenous interaction term

I am trying to estimate a peer effects model where a certain characteristic of the individual and the peers might be endogenous: $$\ y_i=\alpha + \beta_1 Controls_i + \gamma_1 Endog_i +\gamma_2 ...
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2answers
58 views

Regression: Difference between Instrumental variables and Feature Extraction?

I researched the topic on the internet and to the best of my knowledge there is no existing literature on the subject comparing and contrasting the pros and cons of the two methods. It seems that ...
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49 views

Structural Equation Modelling

Consider the following model : $$\begin{aligned} Crime &= α_0 + γ_1Police + α_1Unemp + α_2Income + α_3Gini + u_1 &(1) \\ Police &= β_0 + γ_2Crime + β_1Income + β_2Pub + u_2 &(2) ...
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How to interpret second-stage coefficient in instrumental variables regression with a binary instrument and a binary endogenous variable?

(fairly long post, sorry. It includes lots of background info, so feel free to skip to the question at the bottom.) Intro: I am working on a project where we are trying to identify the effect of a ...
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GMM post estimation tests

Within a 3 equation GMM model how do you judge the validity of your IVs? You really can't do what I have seen where people look at the first-stage of 2SLS models for each equation, because within GMM ...
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2answers
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Test for the exogeneity of instrument by regressing it against the residual

I'm concerned that my OLS regression is biased / inconsistent due to omitted variable bias: $$Y = \beta_0 + \beta_1 X + \epsilon$$ I'm thinking about using $Z$ as instrument for $X$. Is there a test ...
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1answer
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Clarifying a sentence from Angrist and Krueger (2001)

In Angrist and Krueger (2001), it is said, during the discussion of pitfalls in using IV, on page 79 that Because the reduced form effects are proportional to the coefficient of interest, one ...
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Signing the inconsistency of a control functions estimator with an incomplete set of instruments

I've got a model of the form $$ y = 1\left(\alpha+\delta x+\beta_1\tilde v+\tilde\epsilon>0\right) $$ $x$ is endogenous, and $\tilde v$ is a control function residual: $$ \tilde v = ...
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47 views

How to get Anderson-Rubin confidence intervals for 2SLS with 2 endogenous variables in R?

I'm trying to construct Anderson Rubin confidence intervals robust to heteroskedasticity and weak instruments using "R". I estimate a two stage least squares model with 2 endogenous variables and 4 ...
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Joint or 2 stage estimation of multinomial model with instrument variables

I have an multinomial model, which is nonlinear. One of the explanatory variables is endogenous. I want to instrument for it. But I am not sure if I should do the traditional two stage or do it in one ...
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Presence of Heteroskedasticity, Robust Standard Errors - Stata

I have a panel of 49 observations, 7 countries, 7 years, running Panel fixed effects and IV fixed effects on Stata. I have used the modified Wald test to test for the presence of heteroskedasticity p ...
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How to estimate Heckprobit when there is a continuous endogenous regressor?

My model is following Y1=f(Y2 X1); Y1 is a binary variable and whether Y1 observed is depend on X1, X2. Meanwhile, Y2 is endogenous explanatory variabel which determined by Y2=f(X1 X3). My approach ...
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Are There Evaluation Criteria For Instrumental Variables?

If theory points to multiple possible instruments that can be used, how can I choose which one of them is the best for 2SLS? I read that good instrument should be significant and correlated with the ...
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1answer
504 views

Two stage models: Difference between Heckman models (to deal with sample selection) and Instrumental variables (to deal with endogenity)

I am trying to get my head around the difference between sample selection and endogeneity and in turn how Heckman models (to deal with sample selection) differ from instrumental variable regressions ...
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1answer
49 views

Quantile regression with continuous endogenous variables

First of all, let me apologise if this question has been resolved elsewhere on the site / the net. I have been researching a methodology for IV Quantile regression with continuous endogenous ...
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1answer
20 views

Correlation with Lagged Variable

I am trying to predict the number of hospital visits in year 2. Lets call that NV2 I want to know if it is related to whether the person had visited the hospital in year one. That is a dummy ...
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2answers
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Continuous Instrumental Variable?

In the classical Instrumental Variable model: $Y = \beta X + U \, $ an instrumental, binary variable ($Z$) is used to correct for confoundness between $Y$ and $U$ and must satisfy independence wrt ...
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Leaving out other endogenous variables when having one instrument

Let's suppose we have a regression $E(Y|X)$ with two known endogenous variables $X_1$ and $X_2$ and one instruments $Z_1$. My regression is: $y=\alpha+b_1 X_1+b_2 X_2 + \Gamma X_{exo}+u$ $Z_1$ seems ...
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What is the accurate first stage regression in Stata's 2SLS option in IVREG2?

What I want to find is if Stata stacks the variables, such as is in: $$ \begin{bmatrix} x_{1t} \\ x_{2t} \end{bmatrix}=\begin{bmatrix} b_{1} \\ a_{1} \end{bmatrix}+\begin{bmatrix} b_2 & b_3 & ...
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How are bayesian instrumental variables calculated?

So with regular frequentist statistics, I know that you can just regress on the first stage of two-stage least squares, get the predicted values, then plug them into the second stage. How does this ...
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Simultaneous Equation Modeling with interacted endogenous and exogenous variable in R or STATA

I want to build a simultaneous equation system (SEM) where the two endogenous variables are interacted with the same exogenous variables. For instance the following system: y1 = y2*x1 + z1 y2 = ...