Econometrics HT 18
Chapter 26 : Instrumental variables
By Lund University
Instrumental variables are used to handle endogeneity problems
Instrumental variables
When we have endogenous variables, we can sometimes find instruments for them, variables which are correlated with our endogenous variable but not with the error term. This opens for the possibility of consistently estimate the parameters in our model using the instrumental variable estimator and the generalized instrumental variable estimator.