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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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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37 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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29 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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20 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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39 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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51 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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22 views

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

Is there a solution coded in R to estimate models of the form $$ y_{igt} = \alpha_i + P_{gt} + \beta_1y_{igt-1}+ \beta_2y_{igt-2} + X_{igt}'\gamma + \epsilon_{igt} $$ ?? ...
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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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48 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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26 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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43 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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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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74 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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74 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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28 views

IV Probit in R?

Stata has the very useful function ivprobit. For example: ...
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472 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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23 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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1answer
55 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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39 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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169 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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16 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 ...
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25 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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1answer
111 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 and IV regression relating ...
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56 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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36 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 ($\Delta risk_t$) ...
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82 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 ...
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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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94 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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34 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 ...
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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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75 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 ...
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205 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 ...
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91 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 ...
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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 ...
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254 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 ...
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77 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 ...
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123 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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Econometrics: Sargan test

Here are 3 questions about econometrics and R codes. Test the endogeneity of the variable EDUC: ...
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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 ...
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209 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?
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344 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 ...
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1answer
312 views

Limited Information Maximum Likelihood (LIML) estimation in R?

Curious whether anyone knows a package, or has written an implementation themselves, for conducting instrumental variables regressions using LIML in R. All of the R packages I have seen for IV ...
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247 views

Discussion about proxy- and instrument variables and endogeneity in the context of a multi equation model

Assume two equations $Y_1 = X_1\beta_1 + X_2\beta_2 + U_1$ $Y_2 = X_1\alpha_1 + X_2\alpha_2 + U_2$ Further assume that $ \ U_1 = X_4 + E_1$ and $U_2 = X_4 + E_2$ with $ \ corr(Y_1,X_4)\ne 0, \ \ ...
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Question about Hausman-test for endogeneity with two endogenous regressors with potential heteroscedasticity

First question: Is the following example of computing the Hausman-test for endogenity with two endogenous regressors adequate? Second question: Is it true that in case of heteroscedasticity, i.e. ...
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113 views

First stage of TSLS and the matrix of instruments W

If we assume we have 2 equations and each equation contains the other dependent variable. $y_1 = \beta_0 + \beta_1 y_2 + \beta_2 z_1 + u_1$ $y_2 = \alpha_0 + \alpha_1 y_1 + \alpha_2 z_2 + u_2$ For ...
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321 views

When are the asymptotic variance of OLS and 2SLS equal?

Assume the model $ \ y = X\beta + u \ $ with $\ W \ $ is a $ \ n\times l \ $ so called matrix of instruments. The following assumptions hold. There is a law of large numbers (LLN) for 1.,2.,3. and ...
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Mixed thoughts about the Durbin-Wu-Hausman Test. Is it really feasible?

I just studied (again) some statements of the DWH test. After I thought about the theory behind the DWH test, is it not basically kind of useless since I cannot tell if there's actually a problem ...
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Definition of “optimal” instruments

The book I read (Davidson,MacKinnon - Econometric Theory and Methods) describes the definition of "optimal instrument variables" as the following: Usually, and this is seen very often in other ...