Instrumental variables (student stuff)

2 Dec, 2020 at 18:43 | Posted in Statistics & Econometrics | Comments Off on Instrumental variables (student stuff)

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Great presentation that also underlines the mistake many economists do when they use IV analysis and think that their basic identification assumption is empirically testable. It is not. And just swapping an assumption of residuals being uncorrelated with the independent variables with the assumption that the same residuals are uncorrelated with an instrument doesn’t solve the endogeneity problem or improve our causal analysis.