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 random effect heteroscedasticity autocorrelation [on hold]

I need to estimate a model using 2SLS with panel data because I have an endogenous variable. Hausman tells me to choose a random effect specification so I should use the ...
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6 views

Lagged Part-time Employment Share as Instrument

I am going to run a regression of unemployment on part-time employment share, but as there will be reverse causality I am going to use an IV. I only have the part-time share for 24 years (with 1 ...
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17 views

Partially Endogenous Variables in a Panel Dataset

In the framework of a fixed effects model: Y$_{it}$ = X$_{it}$ + Z $_{it}$ + $\alpha$$_{i}$ + $\theta$$_{t}$ + $\epsilon$$_{it}$ what is the standard way to capture the unbiased effect of Z, in the ...
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14 views

Panel Data & IV

I have a panel data, and need to run an IV. I have only 1 endogenous variable. 1) Should I use a Two-stage least squares or a GMM? 2) I understand that GMM is only for dynamic panel data. What is a ...
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26 views

Regress residuals in second regression

I am wondering if anyone can point me to a paper/lecture notes on the rationale behind first running an OLS on a set of variables, and then in a second regression using the residuals of that ...
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14 views

Valid Instruments for an IV/2SLS Regression for house prices

I'm brand new here so my apologies if this is too general or has been answered elsewhere. I'm trying to estimate a model for the house prices that includes several endogenous regressors. For the sake ...
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9 views

Significance test for multiplied coefficients using STATA [closed]

A two stage model is used because Y is a function of C and C is a function of M theoretically. i.e. Y=F(C(M)). We want to find the effect of M on Y. If I estimated the two-stage model by 2 stages ...
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1answer
18 views

Good tutorial for coding up estimator functions in R [closed]

I want to code up Lewbel's "special regressor" estimator in R, and I'd like to make it into something that others can use. I can write simple functions, but I don't fully understand the guts of even ...
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12 views

Using targeting (eligibility criterion) as an instrument

I want to know if it is economterically sound to use the targeting criterion (eligibility criterion) as an IV for a natural experiment. I have read a UCT program that uses a certain set of ...
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1answer
39 views

Intrumental variable for covariates

I am only interested in the causal and unbiased effect of x on y and I have used additional covariates in my model to control for other effects. I have a pretty decent instrument for my potentially ...
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26 views

What can go wrong if I use normal 2sls IV regression for count data?

My dependent variable is count data and for explanatory analysis we used a negative binomial regression. One variable is endogenous and we would like to instrument it. However, in Stata there is only ...
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1answer
38 views

Changes in F-value of instrument

I am using 2SLS to estimate the effect of education on the probability that one works. In the first stage I regress education on my instrument and the other exogenous control variables. The same ...
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3answers
65 views

Is the key assumption for instrumental variables not testable?

The key assumption: the IV is independent of the response varible Y, cannot be tested empirically and can be argued only theoretically. Is this true? Why? And why is this a problem when we use ...
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28 views

Characterizing weak instruments bias with more than one endogenous variable

With a single endogenous variable, it is well known that a weak instrumental variable (or set of weak instrumental variables*) will bias 2SLS estimates toward OLS estimates. But how can one ...
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38 views

Endogeneity problem

I am doing a panel random effects model for estimating the relationship between remittances and poverty. My results are significant. But literature suggests there may be a problem of endogeneity or ...
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25 views

Large standard errors in IV regression [duplicate]

I am encountering very large standard errors of the endogenous regressor (bigger than the size of the coefficient) in the second step of my treatment-effects model (...
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14 views

Is it wrong to instrument panel data with an instrument without time series variation?

I have a balanced panel of individuals with an endogenous independent variable $x$. Fortunately I have an instrument $z$ that meets the exclusion restriction, but unfortunately this $z$ has no ...
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1answer
48 views

OLS versus IV regression results

I am doing an IV regression after OLS. From OLS I get significant results but I want to control for endogeneity and check reverse causality. So when I do IV, the sign of my main explanatory variable ...
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1answer
42 views

An example of Instrumental Variables use

In the following example of Greene's Econometric Analysis, he writes at a certain moment: «If the number of weeks worked, and the accepted wage offer are determined jointly, then $ln Wage_{it}$ and ...
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1answer
44 views

positive price coefficient after instrumentation in demand estimation

I need to complete an assignment for Industrial Organization course where one of the tasks is to estimate a discrete choice demand model. This means I basically need to estimate a linear model: ...
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40 views

Endogenous interactions in nonparametric instrumental variables

I'm interested in estimating a model along the lines of $$ pr(y==1) = g^{-1}\left(f(x_1,x_2)+X'\beta\right)+\epsilon $$ where $g$ is logit and $f$ is some smooth function. I'm using GAM's in ...
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1answer
76 views

High Collinearity between Instrument and Endogenous Variable in IV Estimation: Weak Instrument Problem?

I am estimating an IV Tobit model with one endogenous variable X and one instrument Z. $$Y=X\beta+ covariates +\epsilon$$ where $cov(X,\epsilon) \ne 0$ due to endogeneity of $X$. I am using IV ...
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1answer
43 views

Estimation of individual demand for gasoline

Quantity and price of gasoline are clearly endogenous because the quantity and price are determined by the supply and demand. However, the estimation of individual demand for gasoline is often done ...
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1answer
65 views

Choice of an instrument

In order to estimate the demand for electricity, I decided to instrument for monthly electricity consumption in a geographic area with the number of heating and cooling days. My thinking is that ...
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1answer
52 views

How to deal with weak instrument with GMM estimator?

I use the two-step system GMM estimator (panel data) and I get the following results: ...
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27 views

A proper use of the Cragg-Donald F-Statistic with more than one endogenous variable

I've read that the Cragg-Donald F-Statistic is similar to an F-test on the first-stage OLS regression when you have one endogenous variable. But with more than two endogenous variables, you should use ...
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26 views

Graph showing the first stage effect

I am using a 2SLS approach in order to estiamte the effect from increased education. I want to show the effects of the first stage graphically, ie I want to show that the instrument affects schooling ...
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1answer
107 views

2SLS probit vs LPM

I am using 2SLS to estimate the effect of education on the probability that one works. In the first stage I regress education on my instrument and the other exogenous control variables. The same ...
2
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1answer
175 views

2SLS - logit/probit in the second stage?

I just have a quick question: what if I'm interested in estimating a logit/probit model in the second stage, can I follow this two-step procedure by running OLS in the first stage (endogenous variable ...
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1answer
129 views

Mixing instruments in ivreg2 estimation in Stata

When using a 2sls estimation with ivreg2 with more than one endogenous variable, Stata necessarily -- as it seems to be -- instruments both endogenous variables ...
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19 views

Dynamic nonlinear IV question — how do you think about the exclusion restriction when you have multiple periods?

The setup is an experiment with a binomial outcome, repeated over two (or more) periods. In the first period, $X$ is randomly allocated. Of interest is its effect in predicting the probability of ...
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42 views

Is the application of the Frisch-Waugh-Lovell Theorem really necessary?

Suppose I have a model \begin{eqnarray} y = X_1 \beta + X_2 \gamma + \epsilon \\ X = Z \Pi + V \end{eqnarray} where $X_1$ is endogenous, Z are instruments, $X_2$ are exogenous. If I however include ...
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1answer
165 views

Why report r-squared in Instrumental Variables Estimation?

I mean the the R-squared calculated such as in $R^2=1-\frac{RSS}{TSS}$ when you use the $RSS$ from the original structural model and not recalculation that you should do in order to do an F test. With ...
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1answer
42 views

Is LIML consistent under heteroskedastic errors?

Please let the answer be yes. Suppose we have a model \begin{eqnarray} y= X \beta + \epsilon \\ X = Z \Pi + V \end{eqnarray} and we compute the LIML estimator \begin{eqnarray} \hat{\beta}_{LIML} = ...
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1answer
33 views

Deriving the common LIML estimator from first principles

David Hendry (1976) comments that deriving the LIML estimator is hard. I tend to agree. Guido Imbens has a nice expression here which reads \begin{eqnarray} \hat{\beta}_{LIML} = (X'(I - \lambda M_Z) ...
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39 views

Who to credit for “control functions” in econometrics?

The idea is pretty simple, and I think it came out sort of by-the-way in a paper about something else, so I'm having a hard time figuring out who to cite. Basically you've got a GLM (like a probit or ...
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1answer
45 views

Instrumental variables and noisy measurement

I am interested in the effect of the unemployment rate at the time of labor market entry ($u^{LME}$) on wages later in life (this is an old question, but I have a new data set). I'd like to run ...
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1answer
60 views

Combining propensity score matching with 2SLS

Inspired by the probit 2SLS estimation (see e.g. Wooldridge p.623, procedure 18.1 or check here probit two stage least squares), I am wondering if instead of running a Probit in the very first step, I ...
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1answer
21 views

IV or latent factor to process multiple measures?

I have several measures on different memory tests. I consider these measures may actually measure different aspects of memory functioning and every measure contains a measurement error. I am thinking ...
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3answers
126 views

Clustering in Instrumental Variables Regression?

I am wondering whether clustering in IV estimation would mean I have a fixed effect for both error terms or just for the structural error. For example, in the model \begin{eqnarray} y = X \beta + ...
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1answer
43 views

Typos in Hayashi Econometrics? How to understand this 2SLS as an IV estimator

Below are a few passages of Hayashi's Econometrics. According to the notation there, $X$ the matrix of instruments, $Z$ the matrix of original regressors, and $Y$ vector of dependent variable. A few ...
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2answers
81 views

2 stage least Squares as an Instrumental variable estimator

$\mathbf{X}_{n \times K}= \begin{bmatrix} \mathbf{x}'_1 \\ \cdots \\ \mathbf{x}'_n \end{bmatrix}$ $\mathbf{Z}_{n \times L}= \begin{bmatrix} \mathbf{z}'_1 \\ ...
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56 views

Can I interact my randomly-assigned variable with another variable in TSLS?

I'm working on an IV setup that uses random courtroom assignment as an instrument for whether a defendant goes to jail or not. (Similar to here and others). I have about five years of courtroom data, ...
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1answer
76 views

Identifying $\beta_1$ with one instrumental variable and one exogenous variable

$\textbf{Question:}$ Suppose we have ${(Y_i, X_i,Z_i,W_i)^{n}_{i=1}}$ which is a random sample from the joint distribution of $(Y,X,Z,W)$ that satisfies the following relation: ...
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Rule of thumb for excluded variable in Heckman selection model?

I'm working on a project that involves the use of a Heckman selection model (more specifically a Roy or move-stay model, which is essentially a two-sided Heckman) of the following form: $$ Y_{i1} = ...
3
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1answer
80 views

Show that $\widehat{Cov(\hat{\mu},Z_i)}$ is always zero even $Cov(\mu,Z_i)$ is not always $0$

I will state the question first then my work. Q: We have a regression model, $Y_i=\beta_0+\beta_1X_i+\mu_i$ where $Cov(\mu_i,X_i)=0$ is not guaranteed. Suppose that $Z_i$ is an instrumental ...
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1answer
112 views

Estimating number of compliers

Be $X$ a dichotomous endogenous variable and $Z$ its dichotomous instrumental variable. Suppose that for compliers if $Z_i=0$ then $X_i=0$ and if $Z_i=1$ then $X_i=1$. Assuming that defiers do not ...
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1answer
90 views

Fixed Effects and Dynamic Panel Data

I have a theoretical model that suggests I should estimate the following regression using longitudinal data: $s_{it} = \eta_{i} + \beta_0 x_{it} + \beta_1 x_{it}^2 + \epsilon_{it}$ where $x_{it} ...
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1answer
405 views

Interpretation of ivreg() diagnostics in R

I'm trying to wrap my head around interpreting the diagnostics of the ivreg() command in R, from {AER} package. Running the example code provided in the help page: ...
2
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1answer
80 views

Endogeneity test instrumental variables

I'm reading a paper in which is used the following endogeneity test: First of all, we have the initial linear model: $$y = \beta_0 + \beta_1x_1 + \beta_2x_2 + \beta_3x_3 + e$$ $x_3$ is the ...