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The Cure Can Be Worse than the Disease: A Cautionary Tale Regarding Instrumental Variables

  • John Bound
  • David A. Jaeger
  • Regina Baker

In this paper we draw attention to two problems associated with the use of instrumental variables (IV) whose importance for empirical work has not been fully appreciated. First, using potential instruments that explain little of the variation in the: endogenous explanatory variables can lead to large inconsistencies of the IV estimates even If only a weal

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0137.

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Date of creation: Jun 1993
Date of revision:
Publication status: published as "Problems with Instrumental Variables Estimation when the Correlation Between the Instruments and the Endogenous Explanatory Variables is Weak," Journal of the American Statistical Association, 90 (June): 443-450. 1995
Handle: RePEc:nbr:nberte:0137
Note: LS
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  1. Nelson, C. & Startz, R., 1988. "Some Furthere Results On The Exact Small Sample Properties Of The Instrumental Variable Estimator," Working Papers 88-06, University of Washington, Department of Economics.
  2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  3. Joshua D. Angrist & Guido W. Imbens, 1995. "Average Causal Response with Variable Treatment Intensity," NBER Technical Working Papers 0127, National Bureau of Economic Research, Inc.
  4. Joshua Angrist & Alan Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," Working Papers 653, Princeton University, Department of Economics, Industrial Relations Section..
  5. Buse, A, 1992. "The Bias of Instrumental Variable Estimators," Econometrica, Econometric Society, vol. 60(1), pages 173-80, January.
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