Raunig, Burkhard - In: Econometrics : open access journal 7 (2019) 2/20, pp. 1-17
It is customary to assume that an indicator of a latent variable is driven by the latent variable and some random noise … effect indicators. This paper assesses instrumental variable (IV) estimation of the effect of a latent variable in a linear … model when a background indicator replaces the latent variable. It turns out that IV estimates are inconsistent in many …