Identification With Imperfect Instruments

Aviv Nevo and Adam Rosen

The Review of Economics and Statistics, 2012, vol. 94, issue 3, 659-671

Abstract: Dealing with endogenous regressors is a central challenge of applied research. The standard solution is to use instrumental variables that are assumed to be uncorrelated with unobservables. We instead allow the instrumental variable to be correlated with the error term, but we assume the correlation between the instrumental variable and the error term has the same sign as the correlation between the endogenous regressor and the error term and that the instrumental variable is less correlated with the error term than is the endogenous regressor. Using these assumptions, we derive analytic bounds for the parameters. We demonstrate that the method can generate useful (set) estimates by using it to estimate demand for differentiated products. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: instrumental variables; endogenous regressors (search for similar items in EconPapers)
JEL-codes: C01 C13 C21 (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (158)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00171 link to full text PDF (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Identification with imperfect instruments (2008)
Working Paper: Identification with Imperfect Instruments (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:restat:v:94:y:2012:i:3:p:659-671

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by The MIT Press ().