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The Nonexistence of Instrumental Variables


  • Stephen Hall


  • George S. Tavlas


  • P. A. V. B. Swamy



The method of instrumental variables (IV) and the generalized method of moments (GMM) has become a central technique in health economics as a method to help to disentangle the complex question of causality. However the application of these techniques require data on a sufficient number of instrumental variables which are both independent and relevant. We argue that in general such instruments cannot exist. This is a reason for the widespread finding of weak instruments.

Suggested Citation

  • Stephen Hall & George S. Tavlas & P. A. V. B. Swamy, 2011. "The Nonexistence of Instrumental Variables," Discussion Papers in Economics 11/24, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:11/24

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    Cited by:

    1. Hall, Stephen G. & Kenjegaliev, Amangeldi & Swamy, P.A.V.B. & Tavlas, George S., 2013. "Measuring currency pressures: The cases of the Japanese yen, the Chinese yuan, and the UK pound," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 1-20.
    2. Ma, Shuang & Sun, Churen & Tian, Guoqiang, 2011. "Minimum wage and export: evidence from Chinese firm-level data," MPRA Paper 35098, University Library of Munich, Germany.

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    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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