The purpose of this paper is to help dispel the common textbook misperception that consistent instrumental variable estimation requires exogenous instruments. A necessary and sufficient condition is presented that implies Stock and Watson's (2010, App. 12.6) conditional mean independence...

In this paper we study the finite sample and asymptotic properties of various weighting estimators of the local average treatment effect (LATE), several of which are based on Abadie (2003)’s kappa theorem. Our framework presumes a binary endogenous explanatory variable (“treatment”) and a...

We provide simple tests for selection on unobserved variables in the Vytlacil-Imbens-Angrist framework for Local Average Treatment Effects (LATEs). Our setup allows researchers not only to test for selection on either or both of the treated and untreated outcomes, but also to assess the...

The effect of a treatment may depend on the intensity with which it is administered. We study identification of ordered treatment effects with a binary instrument, focusing on the effect of moving from the treatment's minimum to maximum intensity. With arbitrary heterogeneity across units,...

Researchers using instrumental variables to investigate ordered treatments often recode treatment into an indicator for any exposure. We investigate this estimand under the assumption that the instruments shift compliers from no treatment to some but not from some treatment to more. We show that...

Many studies in economics use instruments or treatments which combine a set of exogenous shocks with other predetermined variables by a known formula. Examples include shift-share instruments and measures of social or spatial spillovers. We review recent econometric tools for this setting, which...

We consider instrumental variables estimation of a possibly infinite order dynamic panel autoregressive (AR) process with individual effects. The estimation is based on the sieve AR approximation with its lag order increasing with sample size. Transforming the variable to eliminate individual...

This chapter synthesizes and critically reviews the modern instrumental variables (IV) literature that allows for unobserved heterogeneity in treatment effects (UHTE). We start by discussing why UHTE is often an essential aspect of IV applications in economics and we explain the conceptual...

The instrumental variable model is one of the central tools for the analysis of causal relationships in observational data. The Anderson and Rubin (1949) test is an important method that allows for reliable inference in the instrumental variable model when the instruments are weak. Yet, the...

This study re-examines the effects of monetary policy using Japanese data and a new approach, the shift-share regressor and instrumental variables, which has not been used in previous vector autoregression analyses. We find that consumption and investment respond negatively to interest rates,...