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Instrumental Variables Regressions with Honestly Uncertain Exclusion Restrictions

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dc.contributor.authorKraay, Aart
dc.date.accessioned2012-05-30T19:27:15Z
dc.date.available2012-05-30T19:27:15Z
dc.date.issued2008-05
dc.description.abstractThe validity of instrumental variables (IV) regression models depends crucially on fundamentally untestable exclusion restrictions. Typically exclusion restrictions are assumed to hold exactly in the relevant population, yet in many empirical applications there are reasonable prior grounds to doubt their literal truth. In this paper I show how to incorporate prior uncertainty about the validity of the exclusion restriction into linear IV models, and explore the consequences for inference. In particular I provide a mapping from prior uncertainty about the exclusion restriction into increased uncertainty about parameters of interest. Moderate prior uncertainty about exclusion restrictions can lead to a substantial loss of precision in estimates of structural parameters. This loss of precision is relatively more important in situations where IV estimates appear to be more precise, for example in larger samples or with stronger instruments. The author illustrates these points using several prominent recent empirical papers that use linear IV models.en
dc.identifierhttp://documents.worldbank.org/curated/en/2008/05/9473668/instrumental-variables-regressions-honestly-uncertain-exclusion-restrictions
dc.identifier.doi10.1596/1813-9450-4632
dc.identifier.urihttps://hdl.handle.net/10986/6693
dc.languageEnglish
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Paper No. 4632
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectABSOLUTE VALUE
dc.subjectBAYESIAN ANALYSIS
dc.subjectBENCHMARK
dc.subjectBILATERAL TRADE
dc.subjectCAUSATION
dc.subjectCONFIDENCE INTERVALS
dc.subjectCONSUMERS
dc.subjectCONTROL VARIABLES
dc.subjectCORRELATIONS
dc.subjectCOUNTRY DUMMIES
dc.subjectCOVARIANCE
dc.subjectDEGREES OF FREEDOM
dc.subjectDEPENDENT VARIABLE
dc.subjectDISTRIBUTIONAL ASSUMPTIONS
dc.subjectDUMMY VARIABLE
dc.subjectECONOMETRIC THEORY
dc.subjectECONOMIC ACTIVITY
dc.subjectECONOMIC DEVELOPMENT
dc.subjectECONOMIC GROWTH
dc.subjectENDOGENOUS VARIABLE
dc.subjectENDOGENOUS VARIABLES
dc.subjectEQUATIONS
dc.subjectERROR
dc.subjectERROR TERM
dc.subjectERROR TERMS
dc.subjectEXCLUSION
dc.subjectEXPERIMENTAL DATA
dc.subjectFINANCIAL DEVELOPMENT
dc.subjectFINANCIAL SERVICES
dc.subjectFITTED VALUES
dc.subjectGAMMA DISTRIBUTION
dc.subjectGDP
dc.subjectGDP PER CAPITA
dc.subjectGROWTH RATE
dc.subjectGROWTH RATES
dc.subjectHUMAN CAPITAL
dc.subjectINFLATION
dc.subjectINSTRUMENTAL VARIABLE
dc.subjectINSTRUMENTAL VARIABLES
dc.subjectINSTRUMENTAL VARIABLES ESTIMATOR
dc.subjectINSTRUMENTAL VARIABLES REGRESSION
dc.subjectINTERNATIONAL BANK
dc.subjectLIKELIHOOD FUNCTION
dc.subjectLINEAR FUNCTION
dc.subjectLINEAR REGRESSION
dc.subjectLINEAR REGRESSION MODEL
dc.subjectMACROECONOMICS
dc.subjectMATRIX
dc.subjectMORTALITY
dc.subjectNORMAL DISTRIBUTION
dc.subject0 HYPOTHESIS
dc.subjectPER CAPITA INCOMES
dc.subjectPRECISION
dc.subjectPROBABILITY
dc.subjectPROBABILITY DISTRIBUTION
dc.subjectPROPERTY RIGHTS
dc.subjectRANDOM VARIABLE
dc.subjectRANDOM VARIABLES
dc.subjectREGRESSION MODEL
dc.subjectROBUSTNESS CHECKS
dc.subjectSAMPLE MEAN
dc.subjectSAMPLE SIZE
dc.subjectSENSITIVITY ANALYSIS
dc.subjectSLOPE COEFFICIENT
dc.subjectSLOPE COEFFICIENTS
dc.subjectSTANDARD DEVIATION
dc.subjectSTANDARD ERRORS
dc.subjectSTRUCTURAL PARAMETERS
dc.subjectTEST STATISTICS
dc.subjectTRADE EQUATION
dc.subjectTRADE OPENNESS
dc.subjectTRADE POLICY
dc.subjectTRADE SHARE
dc.subjectUNCERTAINTY
dc.subjectUNKNOWN PARAMETER
dc.subjectVALIDITY
dc.subjectVARIABLE ESTIMATION
dc.subjectVARIANCE-COVARIANCE MATRIX
dc.titleInstrumental Variables Regressions with Honestly Uncertain Exclusion Restrictionsen
dspace.entity.typePublication
okr.crossref.titleInstrumental Variables Regressions With Honestly Uncertain Exclusion Restrictions
okr.date.doiregistration2025-04-10T09:58:28.595452Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/2008/05/9473668/instrumental-variables-regressions-honestly-uncertain-exclusion-restrictions
okr.globalpracticeMacroeconomics and Fiscal Management
okr.globalpracticeTransport and ICT
okr.globalpracticeFinance and Markets
okr.guid976041468315833446
okr.identifier.doi10.1596/1813-9450-4632
okr.identifier.externaldocumentum000158349_20080527111401
okr.identifier.internaldocumentum9473668
okr.identifier.reportWPS4632
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2008/05/27/000158349_20080527111401/Rendered/PDF/wps4632.pdfen
okr.topicFinance and Financial Sector Development::Currencies and Exchange Rates
okr.topicEconomic Theory and Research
okr.topicMacroeconomics and Economic Growth::Econometrics
okr.topicFinance and Financial Sector Development::Access to Finance
okr.topicStatistical and Mathematical Sciences
okr.topicScience and Technology Development
okr.unitDevelopment Research Group (DECRG)
okr.volume1 of 1
relation.isAuthorOfPublicationfe7bc90f-4a13-5746-9efb-e11d3386cdf8
relation.isAuthorOfPublication.latestForDiscoveryfe7bc90f-4a13-5746-9efb-e11d3386cdf8
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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