Tagged Questions

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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2
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1answer
66 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
votes
1answer
50 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 ...
3
votes
1answer
74 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 ...
6
votes
2answers
181 views

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 ...
1
vote
1answer
106 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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0answers
26 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 ...
0
votes
1answer
59 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 ...
3
votes
3answers
105 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 ...
2
votes
1answer
84 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 ...
3
votes
1answer
345 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 ...
2
votes
1answer
103 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 ...
1
vote
1answer
62 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, ...
3
votes
1answer
92 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 ...
3
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0answers
65 views

Dynamic Panel/GMM in R with group:time fixed effects?

Is there a solution coded in R to estimate models of the form $$ y_{igt} = \alpha_i + P_{gt} + \beta_1y_{igt-1}+ \beta_2y_{igt-2} + X_{igt}'\gamma + \epsilon_{igt} $$ ?? ...
2
votes
0answers
28 views

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 ...
2
votes
1answer
115 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: ...
0
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0answers
66 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 ...
0
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1answer
66 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 ...
2
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0answers
52 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 ...
3
votes
2answers
79 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 ...
0
votes
0answers
180 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 ...
0
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2answers
68 views

IV Probit in R?

Stata has the very useful command ivprobit. For example: ...
7
votes
2answers
613 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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0answers
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 ...
1
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1answer
61 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: ...
0
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1answer
46 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 ...
4
votes
1answer
672 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 ...
0
votes
0answers
18 views

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 ...
0
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0answers
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 ...
6
votes
1answer
174 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 ...
1
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0answers
79 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 ...
5
votes
2answers
112 views

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 ...
0
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0answers
39 views

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
votes
1answer
94 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
votes
1answer
120 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. ...
0
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0answers
152 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: ...
0
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0answers
36 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
votes
2answers
103 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 ...
2
votes
0answers
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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0answers
128 views

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 ...
6
votes
0answers
292 views

Instrumental variables and mixed/multilevel models

I want to estimate a growth model to model the growth trajectories of individuals $j$ over multiple time points $t$ by applying a standard mixed/mutilevel model (also known as random coefficient ...
1
vote
2answers
96 views

IV estimator: efficient implementation?

I would like to implement (in R) an instrumental variable (IV) estimator, that takes the most general form (here not 2SLS or GMM!): $$ \beta_{IV} = (Z'X)^{-1}Z'Y $$ I could code this in the naive ...
2
votes
1answer
2k views

Fuzzy regression discontinuity design in Stata

I am currently running computations through a "Fuzzy" Regression discontinuity Design. Suppose my data are in the following form: $Z$: assignment variable; if $Z > Z_0$ then the person is ...
3
votes
1answer
395 views

Applying Frisch-Waugh-Lovell theorem to IV regression in R

I am estimating an instrumental variables linear regression that has a large number of indicator (factor) variables. I don't particularly care about the coefficient estimates on those indicator ...
0
votes
1answer
83 views

valid instrument for oil consumption in IV model

I want to run a gdp vs. oil consumption model where oil consumption is suspected to be endogenous - correlated with the error terms. Can a variable correlated with world oil price but not with the gdp ...
1
vote
1answer
149 views

Derivation of IV estimator?

Assume, the model we are trying to estimate is: $Y=\beta_ß+\beta_1X+U$ where x and u are correlated: $Cov(X,U)\neq 0$ Then OLS is inconsistent: ...
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0answers
541 views

Econometrics: Sargan test

Here are 3 questions about econometrics and R codes. Test the endogeneity of the variable EDUC: ...
8
votes
4answers
6k views

What do “endogeneity” and “exogeneity” mean substantively?

I understand that the basic definition of endogeneity is that $$ X'\epsilon=0 $$ is not satisfied, but what does this mean in a real world sense? I read the Wikipedia article, with the supply and ...
1
vote
2answers
251 views

Where do I put the control variables in 2SLS?

When I am running a 2 stage least squares, where do I put the control variables? Should I put the control variables in the first stage? The second stage? Both? Can someone explain why?
1
vote
1answer
487 views

Testing for weak instruments in panel data

Suppose I have hierarchical data such as students clustered into classrooms. I want to use a two stage least squares regression with an instrument that affects students at the classroom level to test ...