Using instrumental variables to establish causality

Sascha Becker

IZA World of Labor, 2016, No 250, 250

Abstract: Randomized control trials are often considered the gold standard to establish causality. However, in many policy-relevant situations, these trials are not possible. Instrumental variables affect the outcome only via a specific treatment; as such, they allow for the estimation of a causal effect. However, finding valid instruments is difficult. Moreover, instrumental variables estimates recover a causal effect only for a specific part of the population. While those limitations are important, the objective of establishing causality remains; and instrumental variables are an important econometric tool to achieve this objective.

Keywords: natural experiments; quasi-natural experiments; treatment effects; local average treatment effect; omitted variable bias; reverse causality (search for similar items in EconPapers)
JEL-codes: C01 C26 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (27)

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