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  • Instrumental Variables 7

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    Jorge Salcedo
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    The document discusses identification issues in instrumental variable models. It defines just-identified, under-identified, and over-identified models. A just-identified model has as many instruments as endogenous variables and produces an unbiased estimator. An under-identified model has fewer instruments than endogenous variables and has no consistent estimator. An over-identified model has more instruments than endogenous variables and can be estimated efficiently using two-stage least squares or generalized method of moments.

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    The document discusses identification issues in instrumental variable models. It defines just-identified, under-identified, and over-identified models. A just-identified model has as many instruments as endogenous variables and produces an unbiased estimator. An under-identified model has fewer instruments than endogenous variables and has no consistent estimator. An over-identified model has more instruments than endogenous variables and can be estimated efficiently using two-stage least squares or generalized method of moments.

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    6 views1 page

    Instrumental Variables 7

    Uploaded by

    Jorge Salcedo
    The document discusses identification issues in instrumental variable models. It defines just-identified, under-identified, and over-identified models. A just-identified model has as many instruments as endogenous variables and produces an unbiased estimator. An under-identified model has fewer instruments than endogenous variables and has no consistent estimator. An over-identified model has more instruments than endogenous variables and can be estimated efficiently using two-stage least squares or generalized method of moments.

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    © All Rights Reserved
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    Identification issues

     Order condition: The number of omitted instrumental variables must be at least as large as the
    number of endogenous regressor.
     Rank condition: The matrices ′ must have a full rank in order to be inverted.

    Just-identified model
     An IV model is just identified if there is one instrument for each endogenous variable .

    ′ ′ ′

     This estimator is unbiased.

    Under-identified model
     An IV model is under-identified if there are fewer instruments than endogenous variables .
     The under-identified model has an infinite number of solutions and therefore no consistent
    estimator exists.

    Over-identified model
     An IV model is over-identified if there are more instruments than endogenous variables.
     There are two efficient estimators that can be used:

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