Instrumental variables (IV) estimation can provide consistent estimates of a linear equation’s parameters when ordinary least squares (OLS) is biased because an explanatory variable in the equation is correlated with the equation’s disturbance. The necessary ingredient for consistent IV estimation is a “valid” instrument, which is a variable correlated with the offending explanatory variable but uncorrelated with the equation’s disturbance term.

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Instrumental Variables

  • Michael P. Murray

摘要

Instrumental variables (IV) estimation can provide consistent estimates of a linear equation’s parameters when ordinary least squares (OLS) is biased because an explanatory variable in the equation is correlated with the equation’s disturbance. The necessary ingredient for consistent IV estimation is a “valid” instrument, which is a variable correlated with the offending explanatory variable but uncorrelated with the equation’s disturbance term.