Stop breaking down: A graphical analysis of proxy variable and instrumental variable solutions to omitted variable problems

Burkhard Raunig

Economics Bulletin, 2017, vol. 37, issue 3, 1996-2003

Abstract: This graphical analysis discusses cases where proxy variable and instrumental variable solutions to omitted variable problems may break down. The analysis shows that the effectiveness of proxies and instruments depends crucially on the precise causal link between the omitted variable and the explanatory variables included in a structural model.

Keywords: Omitted variable; proxy variable; indicator; instrumental variable (search for similar items in EconPapers)
JEL-codes: C1 C2 (search for similar items in EconPapers)
Date: 2017-08-31
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