Instrument-free inference under confined regressor endogeneity; derivations and applications
Stellenbosch Working Paper Series No. WP09/2020Publication date: June 2020
Author(s):
Instead of exploiting instruments and claiming these to be uncorrelated with the disturbances, in an instrument-free approach one may adopt flexible bounds on the correlation between the endogenous regressors and the disturbances. Such an alternative to Two-Stage Least-Squares (TSLS) inference is developed here for general linear models with endogenous possibly time-dependent regressors. Earlier results enabled this just for rather restrictive mesokurtic i.i.d. cross-section data. In three empirical replication studies their underlying exclusion restrictions are shown to be most doubtful. Next, incredible (weak-instrument robust) TSLS inference is replaced by more reliable remarkably narrow instrument-free asymptotically conservative confidence intervals.
JEL Classification:C12, C13, C21, C22, C26
Keywords:endogeneity robust least-squares inference, new exclusion restrictions test, replication studies, sensitivity analysis of two-stage least-squares
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Monday 21 July 202512:00-13:00
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20 Jun 2025 Israel-Iran war intensifies as Trump still decides if the US should get involvedThe Israel-Iran war dominated news headlines this week. As expected, Iran retaliated following last week’s strikes on nuclear facilities by Israel, leading to a full-blown war between the two countries. On the economic front, the US Federal Reserve (Fed) and Bank of England (BoE) had interest rate decisions this week, with both banks remaining on hold...
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