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Using instrumental variables to establish causality

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  • Sascha O. Becker

    (University of Warwick, UK, and IZA, Germany)

Abstract

Randomized control trials are often considered the gold standard to establish causality. However, in many policy-relevant situations, these trials are not possible. Instrumental variables affect the outcome only via a specific treatment; as such, they allow for the estimation of a causal effect. However, finding valid instruments is difficult. Moreover, instrumental variables estimates recover a causal effect only for a specific part of the population. While those limitations are important, the objective of establishing causality remains; and instrumental variables are an important econometric tool to achieve this objective.

Suggested Citation

  • Sascha O. Becker, 2016. "Using instrumental variables to establish causality," IZA World of Labor, Institute of Labor Economics (IZA), pages 250-250, April.
    • Handle: RePEc:iza:izawol:journl:y:2016:n:250
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    natural experiments; quasi-natural experiments; treatment effects; local average treatment effect; omitted variable bias; reverse causality;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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