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Automating the Selection of Model-Implied Instrumental Variables

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  • Kenneth A. Bollen
  • Daniel J. Bauer

Abstract

Recently, interest has grown in the use of instrumental variables (IVs) in estimating factor analysis and latent variable models such as structural equations models. Bollen (1996) suggested a two-stage least squares (2SLS) technique that makes use of model-implied IVs in estimating the measurement and latent variable models. Model-implied instrumental variables are the observed variables in the model that can serve as instrumental variables in a given equation. One difficulty inhibiting the practical use of the 2SLS estimator is identifying the model-implied IVs. The authors provide a simple procedure that identifies the model-implied IVs and a computer algorithm that can easily be implemented to automate the selection of IVs for simultaneous equations, factor analysis, and latent variable models.

Suggested Citation

  • Kenneth A. Bollen & Daniel J. Bauer, 2004. "Automating the Selection of Model-Implied Instrumental Variables," Sociological Methods & Research, , vol. 32(4), pages 425-452, May.
    • Handle: RePEc:sae:somere:v:32:y:2004:i:4:p:425-452
    DOI: 10.1177/0049124103260341
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    References listed on IDEAS

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    1. Michael A. Magdalinos, 1985. "Selecting the Best Instrumental Variables Estimator," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 473-485.
    2. Kenneth Bollen, 1996. "An alternative two stage least squares (2SLS) estimator for latent variable equations," Psychometrika, Springer;The Psychometric Society, vol. 61(1), pages 109-121, March.
    3. Mariano, Roberto S, 1977. "Finite Sample Properties of Instrumental Variable Estimators of Structural Coefficients," Econometrica, Econometric Society, vol. 45(2), pages 487-496, March.
    4. Albert Madansky, 1964. "Instrumental variables in factor analysis," Psychometrika, Springer;The Psychometric Society, vol. 29(2), pages 105-113, June.
    5. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    6. Robert Jennrich, 1987. "Tableau algorithms for factor analysis by instrumental variable methods," Psychometrika, Springer;The Psychometric Society, vol. 52(3), pages 469-476, September.
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    1. Kenneth Bollen & Albert Maydeu-Olivares, 2007. "A Polychoric Instrumental Variable (PIV) Estimator for Structural Equation Models with Categorical Variables," Psychometrika, Springer;The Psychometric Society, vol. 72(3), pages 309-326, September.

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