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Resurgence of the endogeneity-backed instrumental variable methods

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  • Qin, Duo

Abstract

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.

Suggested Citation

  • Qin, Duo, 2015. "Resurgence of the endogeneity-backed instrumental variable methods," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-35.
  • Handle: RePEc:zbw:ifweej:20157
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2015-7
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    References listed on IDEAS

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    13. 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.
    14. Qin, Duo, 2013. "A History of Econometrics: The Reformation from the 1970s," OUP Catalogue, Oxford University Press, number 9780199679348.
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    Cited by:

    1. repec:gam:jecnmx:v:4:y:2015:i:1:p:1:d:61313 is not listed on IDEAS
    2. Fernández-Antolín, Anna & Guevara, C. Angelo & de Lapparent, Matthieu & Bierlaire, Michel, 2016. "Correcting for endogeneity due to omitted attitudes: Empirical assessment of a modified MIS method using RP mode choice data," Journal of choice modelling, Elsevier, vol. 20(C), pages 1-15.
    3. repec:spr:jecfin:v:41:y:2017:i:3:d:10.1007_s12197-017-9389-7 is not listed on IDEAS
    4. Duo Qin, 2015. "Letís Take the Bias Out of Econometrics," Working Papers 192, Department of Economics, SOAS, University of London, UK.
    5. Duo Qin & Sophie van Huellen & Qing-Chao Wang, 2015. "How Credible Are Shrinking Wage Elasticities of Married Women Labour Supply?," Econometrics, MDPI, Open Access Journal, vol. 4(1), pages 1-31, December.

    More about this item

    Keywords

    endogeneity; instrumental variables; simultaneity; omitted variable bias; multicollinearity;

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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