Advanced Search
MyIDEAS: Login to save this paper or follow this series

Instrumental variables regressions with honestly uncertain exclusion restrictions

Contents:

Author Info

  • Kraay, Aart

Abstract

The validity of instrumental variables (IV) regression models depends crucially on fundamentally untestable exclusion restrictions. Typically exclusion restrictions are assumed to hold exactly in the relevant population, yet in many empirical applications there are reasonable prior grounds to doubt their literal truth. In this paper I show how to incorporate prior uncertainty about the validity of the exclusion restriction into linear IV models, and explore the consequences for inference. In particular I provide a mapping from prior uncertainty about the exclusion restriction into increased uncertainty about parameters of interest. Moderate prior uncertainty about exclusion restrictions can lead to a substantial loss of precision in estimates of structural parameters. This loss of precision is relatively more important in situations where IV estimates appear to be more precise, for example in larger samples or with stronger instruments. The author illustrates these points using several prominent recent empirical papers that use linear IV models.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2008/05/27/000158349_20080527111401/Rendered/PDF/wps4632.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4632.

as in new window
Length:
Date of creation: 01 May 2008
Date of revision:
Handle: RePEc:wbk:wbrwps:4632

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Economic Theory&Research; Statistical&Mathematical Sciences; Currencies and Exchange Rates; Econometrics; Access to Finance;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  2. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 89(3), pages 379-399, June.
  3. Hoogerheide, L.F. & Kleibergen, F.R. & van Dijk, H.K., 2006. "Natural conjugate priors for the instrumental variables regression model applied to the Angrist-Krueger data," Econometric Institute Research Papers EI 2006-02, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
  4. Berkowitz, Daniel & Caner, Mehmet & Fang, Ying, 2008. "Are "Nearly Exogenous Instruments" reliable?," Economics Letters, Elsevier, Elsevier, vol. 101(1), pages 20-23, October.
  5. Poirier, Dale J., 1998. "Revising Beliefs In Nonidentified Models," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 14(04), pages 483-509, August.
  6. Francisco Rodriguez & Dani Rodrik, 2001. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338 National Bureau of Economic Research, Inc.
  7. Michael P. Murray, 2006. "Avoiding Invalid Instruments and Coping with Weak Instruments," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 20(4), pages 111-132, Fall.
  8. Small, Dylan S., 2007. "Sensitivity Analysis for Instrumental Variables Regression With Overidentifying Restrictions," Journal of the American Statistical Association, American Statistical Association, American Statistical Association, vol. 102, pages 1049-1058, September.
  9. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, Springer, vol. 9(3), pages 271-303, 09.
  10. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michal Kolesár & Raj Chetty & John N. Friedman & Edward L. Glaeser & Guido W. Imbens, 2011. "Identification and Inference with Many Invalid Instruments," NBER Working Papers 17519, National Bureau of Economic Research, Inc.
  2. Berkowitz, Daniel & Hoekstra, Mark, 2011. "Does high school quality matter? Evidence from admissions data," Economics of Education Review, Elsevier, Elsevier, vol. 30(2), pages 280-288, April.
  3. Fedderke, Johannes & Klitgaard, Robert, 2013. "How Much Do Rights Matter?," World Development, Elsevier, Elsevier, vol. 51(C), pages 187-206.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4632. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.