Identification with imperfect instruments

Aviv Nevo*, Adam M. Rosen

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

81 Scopus citations

Abstract

Dealing with endogenous regressors is a central challenge of applied research. The standard solution is to use instrumental variables that are assumed to be uncorrelated with unobservables. We instead allow the instrumental variable to be correlated with the error term, but we assume the correlation between the instrumental variable and the error term has the same sign as the correlation between the endogenous regressor and the error term and that the instrumental variable is less correlated with the error term than is the endogenous regressor. Using these assumptions, we derive analytic bounds for the parameters. We demonstrate that the method can generate useful (set) estimates by using it to estimate demand for differentiated products.

Original languageEnglish (US)
Pages (from-to)659-671
Number of pages13
JournalReview of Economics and Statistics
Volume94
Issue number3
DOIs
StatePublished - 2012

ASJC Scopus subject areas

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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