《计量经济学导论》ch15.pptVIP

Chapter 15;The endogeneity problem is endemic in social sciences/economics In many cases important personal variables cannot be observed These are often correlated with observed explanatory information In addition, measurement error may also lead to endogeneity Solutions to endogeneity problems considered so far: Proxy variables method for omitted regressors Fixed effects methods if 1) panel data is available, 2) endogeneity is time-constant, and 3) regressors are not time-constant Instrumental variables method (IV) IV is the most well-known method to address endogeneity problems;Example: Education in a wage equation Definition of a instrumental variable: 1) It does not appear in the regression 2) It is highly correlated with the endogenous variable 3) It is uncorrelated with the error term Reconsideration of OLS in a simple regression model;An simple consistency proof for OLS under exogeneity:;Assume existence of an instrumental variable :;Example: Father‘s education as an IV for education;Other IVs for education that have been used in the literature: The number of siblings 1) No wage determinant, 2) Correlated with education because of resource constraints in hh, 3) Uncorrelated with innate ability College proximity when 18 years old 1) No wage determinant, 2) Correlated with education because more education if lived near college, 3) Uncorrelated with error (?) Month of birth 1) No wage determinant, 2) Correlated with education because of compulsory school attendance laws, 3) Uncorrelated with error ;Properties of IV with a poor instrumental variable IV may be much more inconsistent than OLS if the instrumental variable is not completely exogenous and only weakly related to ;IV estimation in the multiple regression model Conditions for instrumental variable 1) Does not appear in regression equation 2) Is uncorrelated with error term 3) Is partially correlated with endogenous explanatory variable;Computing IV estimates in the multiple regression case:;Two Stage L