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Sensitivity Analysis For Inference In 2SLS Estimation With Possibly-Flawes Instruments

Richard Ashley () and Christopher Parmeter

Working Papers from Virginia Polytechnic Institute and State University, Department of Economics

Abstract: Credible inference requires attention to the possible fragility of the results (p-values for key hypothesis tests) to flaws in the model assumptions, notably including the validity of the instruments used. Past sensitivity analysis has mainly consisted of experimentation with alternative model specifications and with tests of over-identifying restrictions. We provide a feasible sensitivity analysis of two-stage least squares estimation, quantifying the fragility/robustness of inference with respect to possible flaws in the exogeneity assumptions made, and also indicating which of these assumptions are most crucial. The method is illustrated with an empirical application focusing on the education-earnings relationship.

Keywords: Robustness; invalid instruments; flawed instruments; instrumental variables; sensitivity analysis; two-stage least squares. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2013
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ftp://repec.econ.vt.edu/Papers/Ashley/2SLS_IV_sensitivity_analysis.pdf First version, 2013 (application/pdf)
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