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Resurgence of the endogeneity-backed instrumental variable methods

Listed author(s):
  • Qin, Duo
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This paper investigates the nature of the IV method for tackling endogeneity. By tracing the rise and fall of the method in macroeconometrics and its subsequent revival in microeconometrics, it pins the method down to an implicit model respecification device-breaking the circular causality of simultaneous relations by redefining it as an asymmetric one conditioning on a non-optimal conditional expectation of the assumed endogenous explanatory variable, thus rejecting that variable as a valid conditional variable. The revealed nature explains why the IV route is popular for models where endogeneity is superfluous whereas measurement errors are of the key concern.

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2015-7
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File URL: https://www.econstor.eu/bitstream/10419/107701/1/819290785.pdf
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Article provided by Kiel Institute for the World Economy (IfW) in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 9 (2015)
Issue (Month): ()
Pages: 1-35

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Handle: RePEc:zbw:ifweej:20157
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  1. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
  2. James J. Heckman, 2010. "Building Bridges between Structural and Program Evaluation Approaches to Evaluating Policy," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 356-398, June.
  3. Richard Blundell & Monica Costa Dias, 2009. "Alternative Approaches to Evaluation in Empirical Microeconomics," Journal of Human Resources, University of Wisconsin Press, vol. 44(3).
  4. James J. Heckman, 2008. "Econometric Causality," International Statistical Review, International Statistical Institute, vol. 76(1), pages 1-27, 04.
  5. James J. Heckman, 1974. "Effects of Child-Care Programs on Women's Work Effort," NBER Chapters,in: Marriage, Family, Human Capital, and Fertility, pages 136-169 National Bureau of Economic Research, Inc.
  6. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
  7. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  8. Bowden,Roger J. & Turkington,Darrell A., 1990. "Instrumental Variables," Cambridge Books, Cambridge University Press, number 9780521385824, December.
  9. Heckman, J.J. & Hotz, V.J., 1988. "Choosing Among Alternative Nonexperimental Methods For Estimating The Impact Of Social Programs: The Case Of Manpower Training," University of Chicago - Economics Research Center 88-12, Chicago - Economics Research Center.
  10. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Oxford University Press, vol. 60(3), pages 531-542.
  11. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  12. Hendry, David F., 2003. "J. Denis Sargan And The Origins Of Lse Econometric Methodology," Econometric Theory, Cambridge University Press, vol. 19(03), pages 457-480, June.
  13. Qin, Duo, 2013. "A History of Econometrics: The Reformation from the 1970s," OUP Catalogue, Oxford University Press, number 9780199679348, April.
  14. Duncan, Gregory M & Leigh, Duane E, 1985. "The Endogeneity of Union Status: An Empirical Test," Journal of Labor Economics, University of Chicago Press, vol. 3(3), pages 385-402, July.
  15. Nelson, Forrest & Olson, Lawrence, 1978. "Specification and Estimation of a Simultaneous-Equation Model with Limited Dependent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 695-709, October.
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