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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Endogenous ordered probit (Stata, R)

main equation $y_1 = y_2 \beta + x_1 \gamma + u_i $ Instrumental equation $y_2=x_1 \pi_1 + x_2 \pi_2$ I have a binary endogenous variable $y_2$ in my main estimation equation. My instrument $x_2$...
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17 views

2SLS - 2 OLS for 2 endogenous variables in 1st stage and logit/probit in the 2nd stage?

I came across this question (here) saying that I can manually run an OLS in the 1st stage with the endogenous variable as dependent variable (i.e. the instrument) get the fitted values for the ...
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21 views

Probit with more than one instrument

I am estimating a probit model with instruments in R (using ivprobit). My simplified model looks like this: ...
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15 views

Multilevel Binary Logistic Instrumental Variables Regression

Context I have hierarchical data where individuals ($i$) are nested in groups ($j$) and am interested in examining the degree to which a continuous group-level variable ($X_j$) moderates the effect ...
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96 views

How can I compute the standard error of the Wald estimator?

According to Cameron and Trivedi Microeconometrics 2006, page 98-99, the Wald estimator can be written : $$ \widehat{\beta}_{Wald} = \frac{(\bar{y_1} - \bar{y_0})}{(\bar{x_1} - \bar{x_0})} $$ with :...
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31 views

How to estimate a fixed effects regression WITH robust standard errors AND instrument variables

I have been trying to estimated the stated problem, but I only succeed in parts of it. The following artificial setup is supposed to illustrate my problem in detail: Setup the data: ...
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19 views

Why are standard errors downward biased when considering weak instruments

I was wondering why standard errors are (severely) downward biased when you are using the (general) instrumental variable - estimator or the generalized method of moments (gmm) estimator.
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31 views

IV - 2SLS with only an instrumental variable (operative problem)

I have some problems with IV estimation. I read in several works of experiments that using the 2SLS with just one instrumental variable but more than one $X$ variables. When I try to run a 2SLS ...
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1answer
37 views

Time series and instrumental variables

I have a time series model that suffers from endogeneity. In other contexts it would be reasonable to use instrumental variables. However, I have not seen this done before with time series. Can I ask ...
0
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1answer
44 views

Control variables in instrumental variable regression

I have seen published papers include "exogenous controls" in their instrumental variables regression. Can someone explain: What is meant by "exogenous" in this case? The purpose of these "controls" ...
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19 views

Generalized Instrumental Variable Estimator (GIVE)

In some literature it is possible to find the Generalized Instrumental Variable Estimator (GIVE), but this is not always well-specified. Is this estimator equivalent to an estimator found using the ...
4
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3answers
76 views

Definition of validity of an instrumental variable

What does "validity of an instrument" mean exactly? In my econometrics course we have just defined instrument validity as $E[Z|u]=0$, where $Z$ is the instrumental variable and $u$ is the error term ...
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48 views

Double lasso variable selection

Currently I am learning about variable selection and lasso. I found the paper by Urminsky et al. "Using Double-Lasso Regression for Principled Variable Selection" (2016) which proposes a double lasso ...
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45 views

What is the relationship between LATE and TOT?

My understanding of LATE was that it was the effect of a treatment on individuals who were induced to be treated by the experiment. That is, the effect on compliers. My understanding of Treatment-on-...
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1answer
52 views

Why instrumental variables? Or: why not nonparametric regression?

Usually instrumental variables are introduced as a means to solve the problem $E(u|X)\neq 0$ in the model $Y = X'\beta + u$. This may happen if we omit important variables from the covariate vector $X$...
3
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1answer
30 views

Past values of Y correlated with future values of X1 in fixed effects model: use instrumental variable?

I am using panel data, running a fixed effects regression using xtreg Y X1 X2 X3, fe. I suspect, however, that past values of Y ...
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23 views

2SLS Regression, 1 Instrument effecting more than one explanatory variable?

So in my situation I have my dependent variable Log Income my Instrument Diabetes and my supposedly endogenous explanatory variable Reads Nutri. Where things start to get confusing for me is that ...
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153 views

How to interpret hausman test results?

I'm trying to do 2 stage least squares regression in python using the statsmodels library. ...
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12 views

Why I can not perform a Haussman test with pweight data?

I am studying the effect of mobile phone over household development (development as a dependent variable and mobile as a independent). I have a datas et of micro data that are weighed and i am working ...
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31 views

Sign of the correlation between endogenous/instrument variable and error term

I am doing my thesis using 2SLS, the IVs that I include to the model are not weak (F-stat>20), however, to prove that they are exogenous is a problem. I am going to use imperfect instrument approach ...
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17 views

Instrumental variable approach when having a binary variable in first and second stage [duplicate]

I am trying to estimate an IV model where my dependent variable is on the 0-1 scale, which is why I want a Logit estimator. Further, my independent variable, which is endogenous, as well as my ...
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26 views

2 stage least squares

I am looking into the effect of immigration on crime (using random effects panel data). there are 2 problems which 2 stage least squares should help with, firstly the endogeneity of immigration (as ...
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1answer
36 views

Control Function (CF) Approach with Nonlinear Functions of Endogenous Variables

I am estimating a model using the control function approach (also "2SRI"). My model includes an endogenous variable $y_2$, an instrument $z_2$ and an interaction of $y_2$ with an exogenous variable $...
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25 views

Formal test for exogeneity of instruments

Is there a way for me to formally test the exogeneity of my instruments? For instance, I have an endogenous variable, FDI, which I am instrumenting with "ease of doing business ratings," as a better ...
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1answer
27 views

validity of instrumental variables

How does one check the validity of instruments for a just-identified model, since the Sargan test can only be performed if the model is overidentified?
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69 views

Stata ivreg2 with binary endogenous variable interpretation

I have a binary endogenous variable (retirement) with a binary instrumental variable and the final outcome variable is also binary. I run ivreg2 in Stata. I know ...
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21 views

Highly correlated but weak instrument?

I have an instrument and an endogenous variable that correlated at a level of 0.42. This seems to me to be sufficiently strong, but whenever I perform any Wald statistics or weak instrument tests, the ...
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36 views

Fixed effects IV: exogenous covariates changing

Currently, I have 2 endogenous binary variables of interest (call these the VOIs) and 3 instrumental variables(all of which are also dummy variables), allowing me to use the overidentification test to ...
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23 views

Instrumental variable standard errors smaller than naive estimator standard errors

I recently estimated the following model using 2 different estimators, multinomial probit and instrumental variable (IV) multinomial probit: $Product_{i}=\beta_0 + \beta_1Income_i+\beta_2PriceA_i+\...
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25 views

How to interpret instrumental variables estimate if the identifying assumption is not satisfied?

Following the notation here, consider a model $$Y_{i} = \alpha + \beta X_{i} + \eta_{i}$$ where $X_{i}$ is the endogenous variable such that $Cov(X_{i},\eta_{i})\ne 0$. Suppose we have a binary ...
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67 views

Instrumental variable identification for price elasticity

I am working on a price elasticity problem and i am using Log-Log linear model. Below are the set of variables Dependent variable: logarithm of my quantity sold (LogQ) Independent variable: ...
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26 views

Do I have a problem of endogeneity?

I'm currently writing a dissertation on the impact of microfinance activity in a country on the poverty headcount ratio. It's a panel data model where i = country and t = year. I would like to ...
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1answer
113 views

Instrumental variables regression Vs Linear Regression for price elasticity

Based on comment here that What do "endogeneity" and "exogeneity" mean substantively? should we use linear regression or instrumental regression for price elasticity? As price and ...
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32 views

Instrument caused by dependent variable

Suppose that my instrument z is sufficiently correlated with the endogenous independent variable x in consideration (z->x). Now, I know that my dependent variable y is also a predictor of z (y->z) but ...
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31 views

Is it correct to use sampling weights for reducing multicollinearity in Probit?

I tried to estimate a probit model: $$y=b_1x_1+b_2x_2+b_3x_3,$$ where all variables are string and $x_1$ and $x_2$ are correlated. $x_1$ means GINI index and $x_2 = \text{self-employment rate}\cdot \...
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43 views

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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32 views

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 (3)...
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54 views

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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53 views

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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88 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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27 views

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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32 views

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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1answer
60 views

Multiple exogenous IV 2sls in Stata [closed]

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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1answer
32 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 ...
3
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1answer
63 views

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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70 views

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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27 views

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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247 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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73 views

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 (...