Instrumental variables and the search for identification from supply and demand to natural experiments
By: Joshua Angrist [and] Alan B. Krueger
Contributors: Krueger, Alan B.; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 01-33; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 01-33.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2001
Place of publication: Cambridge, MA
Language: eng
Number of pages: 29
Description: The method of instrumental variables was first used in the 1920s to estimate supply and demand elasticities, and later used to correct for measurement error in single-equation models. Recently, instrumental variables have been widely used to reduce bias from omitted variables in estimates of causal relationships such as the effect of schooling on earnings. Intuitively, instrumentalvariables methods use only a portion of the variability in key variables to estimate the relationships of interest; if the instruments are valid, that portion is unrelated to the omitted variables. We discuss the mechanics of instrumental variables, and the qualities that make for a good instrument, devoting particular attention to instruments that are derived from "natural experiments." A key feature of the natural experiments approach is the transparency and refutability of identifying assumptions. We also discuss the use of instrumental variables inrandomized experiments. Keywords: simultaneous equations, two-stage least squares, causal inference.
Notes: Title from cover.

"August 2001."

Includes bibliographical references (p. 25-29).

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