An Instrumental Variable Approach to Dynamic Models

Steven Berry () and Giovanni Compiani ()
Additional contact information
Giovanni Compiani: University of Chicago - Booth School of Business

No 2020-106, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: We present a new class of methods for identification and inference in dynamic models with serially correlated unobservables, which typically imply that state variables are econometrically endogenous. In the context of Industrial Organization, these state variables often reflect econometrically endogenous market structure. We propose the use of Generalized Instrument Variables methods to identify those dynamic policy functions that are consistent with instrumental variable (IV) restrictions. Extending popular “two-step†methods, these policy functions then identify a set of structural parameters that are consistent with the dynamic model, the IV restrictions and the data. We provide computed illustrations to both single-agent and oligopoly examples. We also present a simple empirical analysis that, among other things, supports the counterfactual study of an environmental policy entailing an increase in sunk costs.

Pages: 56 pages
Date: 2020
New Economics Papers: this item is included in nep-com and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020106.pdf (application/pdf)

Related works:
Journal Article: An Instrumental Variable Approach to Dynamic Models (2023)
Working Paper: An Instrumental Variable Approach to Dynamic Models (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:bfi:wpaper:2020-106

Access Statistics for this paper

More papers in Working Papers from Becker Friedman Institute for Research In Economics Contact information at EDIRC.
Bibliographic data for series maintained by Toni Shears ( this e-mail address is bad, please contact ).