Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103207
Authors: 
Qin, Duo
Year of Publication: 
2014
Series/Report no.: 
Economics Discussion Papers 2014-42
Abstract: 
This paper investigates the nature of the IV method for tackling endogeneity. By tracing the rise and fall of the method in macroeconometrics and its subsequent revival in microeconometrics, it pins the method down to an implicit model respecification device - breaking the circular causality of simultaneous relations by redefining it as an asymmetric one conditioning on a non-optimal conditional expectation of the assumed endogenous explanatory variable, thus rejecting that variable as a valid conditional variable. The revealed nature explains why the IV route is popular for models where endogeneity is superfluous whereas measurement errors are of the key concern.
Subjects: 
endogeneity
instrumental variables
simultaneity
omitted variable bias
multicollinearity
JEL: 
B23
C13
C18
C50
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/
Document Type: 
Working Paper

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