Plausibly Exogenous
48 Pages Posted: 18 May 2007 Last revised: 4 Aug 2008
Date Written: July 31, 2008
Abstract
Instrumental variables (IVs) are widely used to identify effects in models with potentially endogenous explanatory variables. In many cases, the instrument exclusion restriction that underlies the validity of the usual IV inference holds only approximately; that is, the instruments are 'plausibly exogenous.' We introduce a method of relaxing the exclusion restriction and performing sensitivity analysis with respect to the degree of violation. This provides a practical tool for applied researchers who want to proceed with less than perfect instruments. We illustrate our approaches with empirical examples that examine the effect of 401(k) participation upon asset accumulation, demand for margarine, and returns-to-schooling.
Keywords: Instrumental Variables, Sensitivity Analysis, Priors
JEL Classification: C3, C11
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Are 'Nearly Exogenous' Instruments Reliable?
By Daniel Berkowitz, Mehmet Caner, ...
-
By Mehmet Caner
-
Instrumental Variables Regressions with Honestly Uncertain Exclusion Restrictions
By Aart Kraay
-
The Validity of Instruments Revisited
By Daniel Berkowitz, Ying Fang, ...
-
Does High School Quality Matter? Evidence from Admissions Data
By Daniel Berkowitz and Mark Hoekstra
-
Violation of Exogeneity: A Joint Test of Structural Parameters and Correlation
-
Does Housing Allowance Feed Through into Rental Prices?
By Matti Viren