Instrumental Variables Regression - PowerPoint PPT Presentation

1 / 87
About This Presentation
Title:

Instrumental Variables Regression

Description:

Chapter 12. Instrumental Variables Regression. 2. Instrumental Variables Regression ... IV Regression with One Regressor and One Instrument (SW Section 12.1) 4 ... – PowerPoint PPT presentation

Number of Views:355
Avg rating:3.0/5.0
Slides: 88
Provided by: Compos
Category:

less

Transcript and Presenter's Notes

Title: Instrumental Variables Regression


1
Chapter 12
  • Instrumental Variables Regression

2
Instrumental Variables Regression (SW Chapter 12)
3
IV Regression with One Regressor and One
Instrument (SW Section 12.1)
4
Terminology endogeneity and exogeneity
5
Two conditions for a valid instrument
6
The IV Estimator, one X and one Z
7
Two Stage Least Squares, ctd.
8
Two Stage Least Squares, ctd.
9
The IV Estimator, one X and one Z, ctd.
10
The IV Estimator, one X and one Z, ctd.
11
Consistency of the TSLS estimator
12
Example 1 Supply and demand for butter
13
(No Transcript)
14
(No Transcript)
15
(No Transcript)
16
TSLS in the supply-demand example
17
TSLS in the supply-demand example, ctd.
18
Example 2 Test scores and class size
19
Example 2 Test scores and class size, ctd.
20
Inference using TSLS
21
(No Transcript)
22
(No Transcript)
23
(No Transcript)
24
Inference using TSLS, ctd.
25
Example Cigarette demand, ctd.
26
Cigarette demand, ctd.
27
STATA Example Cigarette demand, First stage
28
Second stage
29
Combined into a single command
30
Summary of IV Regression with a Single X and Z
31
The General IV Regression Model(SW Section 12.2)
32
Identification
33
Identification, ctd.
34
The general IV regression model Summary of
jargon
35
TSLS with a single endogenous regressor
36
Example Demand for cigarettes
37
Example Cigarette demand, one instrument
38
Example Cigarette demand, two instruments
39
(No Transcript)
40
The General Instrument Validity Assumptions
41
The IV Regression Assumptions
42
Checking Instrument Validity (SW Section 12.3)
43
Checking Assumption 1 Instrument Relevance
44
What are the consequences of weak instruments?
45
An example the sampling distribution of the TSLS
t-statistic with weak instruments
46
Why does our trusty normal approximation fail us?
47
Measuring the strength of instruments in
practice The first-stage F-statistic
48
Checking for weak instruments with a single X
49
What to do if you have weak instruments?
50
Confidence intervals with weak instruments
51
Estimation with weak instruments
52
Checking Assumption 2 Instrument Exogeneity
53
Testing overidentifying restrictions
54
(No Transcript)
55
(No Transcript)
56
Checking Instrument Validity Summary
57
2. Exogeneity
58
Application to the Demand for Cigarettes (SW
Section 12.4)
59
Panel data set
  • Annual cigarette consumption, average prices paid
    by end consumer (including tax), personal income
  • 48 continental US states, 1985-1995

Estimation strategy
  • Having panel data allows us to control for
    unobserved state-level characteristics that enter
    the demand for cigarettes, as long as they dont
    vary over time
  • But we still need to use IV estimation methods to
    handle the simultaneous causality bias that
    arises from the interaction of supply and demand.

60
Fixed-effects model of cigarette demand
61
The changes method (when T2)
62
STATA Cigarette demand
63
Use TSLS to estimate the demand elasticity by
using the 10-year changes specification
64
Check instrument relevance compute first-stage F
65
Check instrument relevance compute first-stage F
66
What about two instruments (cig-only tax, sales
tax)?
67
Test the overidentifying restrictions
68
The correct degrees of freedom for the
J-statistic is mk
69
Tabular summary of these results
70
How should we interpret the J-test rejection?
71
The Demand for CigarettesSummary of Empirical
Results
72
Assess the validity of the study
73
Finding IVs Examples (SW Section 12.5)
74
Example Cardiac Catheterization
75
Cardiac catheterization, ctd.
76
Cardiac catheterization, ctd.
77
Example Crowding Out of Private Charitable
Spending
78
Private charitable spending, ctd.
79
Private charitable spending, ctd.
80
Private charitable spending, ctd.
81
Example School Competition
82
School competition, ctd.
83
School competition, ctd.
84
Summary IV Regression(SW Section 12.6)
85
Some IV FAQs
86
(No Transcript)
87
Threats to internal validity of IV, ctd.
Write a Comment
User Comments (0)
About PowerShow.com