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Bounding a linear causal effect using relative correlation restrictions

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Abstract

This paper describes and implements a simple approach to the most common problem in applied microeconometrics: estimating a linear causal effct when the explanatory variable of interest might be correlated with relevant unobserved variables. The main idea is to place restrictions on the correlation between the variable of interest and relevant unobserved variables relative to the correlation between the variable of interest and observed control variables. These relative correlation restrictions allow a researcher to construct informative bounds on parameter estimates, and to assess the sensitivity of conventional estimates to plausible deviations from the identifying assumptions. The estimation method and its properties are described, and two empirical applications are demonstrated.

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  • Brian Krauth, 2011. "Bounding a linear causal effect using relative correlation restrictions," Discussion Papers dp11-02, Department of Economics, Simon Fraser University.
    • Handle: RePEc:sfu:sfudps:dp11-02
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    13. Matthew A. Masten & Alexandre Poirier, 2022. "The Effect of Omitted Variables on the Sign of Regression Coefficients," Papers 2208.00552, arXiv.org, revised Jun 2025.
    14. Lall, Saurabh A. & Chen, Li-Wei & Roberts, Peter W., 2020. "Are we accelerating equity investment into impact-oriented ventures?," World Development, Elsevier, vol. 131(C).
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    18. Ransom, Michael R. & Ransom, Tyler, 2017. "Do High School Sports Build or Reveal Character?," IZA Discussion Papers 11110, Institute of Labor Economics (IZA).
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    21. KITAGAWA, Toru & SAWADA, Masayuki, 2023. "Linear Regressions, Shorts to Long," Discussion Paper Series 747, Institute of Economic Research, Hitotsubashi University.

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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