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Resurgence of the endogeneity-backed instrumental variable methods

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  • Qin, Duo

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.

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  • Qin, Duo, 2015. "Resurgence of the endogeneity-backed instrumental variable methods," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-35.
    • Handle: RePEc:zbw:ifweej:20157
    DOI: 10.5018/economics-ejournal.ja.2015-7
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    Cited by:

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    3. Brian L. Goff & Michelle W. Trawick, 2017. "Preaching and politics: disentangling religiosity and political choice," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(3), pages 595-609, July.
    4. Sophie van Huellen & Duo Qin, 2019. "Compulsory Schooling and Returns to Education: A Re-Examination," Econometrics, MDPI, vol. 7(3), pages 1-20, September.
    5. Umar Farooq & Jaleel Ahmed & Shamshair Khan, 2021. "Do the macroeconomic factors influence the firm's investment decisions? A generalized method of moments (GMM) approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 790-801, January.
    6. Fernández-Antolín, Anna & Guevara, C. Angelo & de Lapparent, Matthieu & Bierlaire, Michel, 2016. "Correcting for endogeneity due to omitted attitudes: Empirical assessment of a modified MIS method using RP mode choice data," Journal of choice modelling, Elsevier, vol. 20(C), pages 1-15.
    7. Duo Qin & Sophie Van Huellen & Qing-Chao Wang, 2015. "How Credible Are Shrinking Wage Elasticities of Married Women Labour Supply?," Econometrics, MDPI, vol. 4(1), pages 1-31, December.

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    More about this item

    Keywords

    endogeneity; instrumental variables; simultaneity; omitted variable bias; multicollinearity;
    All these keywords.

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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