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A new criterion for selecting valid instruments

Author

Listed:
  • Ratbek Dzhumashev
  • Ainura Tursunalieva

Abstract

This paper develops a new criterion for selecting a valid instrumental variable (IV). This criterion imposes directional restrictions on an instrument in-formed by the sign of the covariance between the error term and the endogenous variable cov(X,u). We show that a valid IV for the case when cov(X,u) > 0 is not suitable for the case when cov(X,u)

Suggested Citation

  • Ratbek Dzhumashev & Ainura Tursunalieva, 2019. "A new criterion for selecting valid instruments," Monash Economics Working Papers 04-19, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2019-04
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    File URL: https://www.monash.edu/business/economics/research/publications/publications2/0419AnewcriterionDzhum.pdf
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    References listed on IDEAS

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    1. Davidson, Russell, 2009. "Econometric Theory and Methods: International Edition," OUP Catalogue, Oxford University Press, number 9780195391053.
    2. Mroz, Thomas A, 1987. "The Sensitivity of an Empirical Model of Married Women's Hours of Work to Economic and Statistical Assumptions," Econometrica, Econometric Society, vol. 55(4), pages 765-799, July.
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    Keywords

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    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General

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