Problems with Instrumental Variables Estimation When the Correlation Between the Instruments and the Endogeneous Explanatory Variable is Weak
| Autor: | Regina Baker, David A. Jaeger, John Bound |
|---|---|
| Rok vydání: | 1995 |
| Předmět: |
Estimation
Statistics and Probability media_common.quotation_subject Instrumental variable Wage Educational attainment Variable (computer science) Sample size determination Statistics Consistent estimator Ordinary least squares Econometrics Statistics Probability and Uncertainty media_common Mathematics |
| Zdroj: | Journal of the American Statistical Association. 90:443 |
| ISSN: | 0162-1459 |
| Popis: | We draw attention to two problems associated with the use of instrumental variables (IV), the importance of which for empirical work has not been fully appreciated. First, the use of instruments that explain little of the variation in the endogenous explanatory variables can lead to large inconsistencies in the IV estimates even if only a weak relationship exists between the instruments and the error in the structural equation. Second, in finite samples, IV estimates are biased in the same direction as ordinary least squares (OLS) estimates. The magnitude of the bias of IV estimates approaches that of OLS estimates as the R 2 between the instruments and the endogenous explanatory variable approaches 0. To illustrate these problems, we reexamine the results of a recent paper by Angrist and Krueger, who used large samples from the U.S. Census to estimate wage equations in which quarter of birth is used as an instrument for educational attainment. We find evidence that, despite huge sample sizes, th... |
| Databáze: | OpenAIRE |
| Externí odkaz: |
|