Granular Instrumental Variables

Xavier Gabaix and Ralph S. J. Koijen

Journal of Political Economy, 2024, vol. 132, issue 7, 2274 - 2303

Abstract: We develop a new method to construct instruments in a broad class of economic environments. In the economies we study, a few large firms, industries, or countries account for an important share of economic activity. Idiosyncratic shocks to these large players significantly affect aggregate outcomes and are valid instruments. We provide a methodology to extract these idiosyncratic shocks to create granular instrumental variables (GIVs), which are size-weighted sums of idiosyncratic shocks. We show how GIVs enable us to estimate causal parameters, such as elasticities and multipliers, and are applicable in a broad range of empirically relevant settings.

Date: 2024
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://dx.doi.org/10.1086/728743 (application/pdf)
http://dx.doi.org/10.1086/728743 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
Working Paper: Granular Instrumental Variables (2020)
Working Paper: Granular Instrumental Variables (2020)
Working Paper: Granular Instrumental Variables (2020)
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:ucp:jpolec:doi:10.1086/728743

Access Statistics for this article

More articles in Journal of Political Economy from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().