Historical Instruments and Contemporary Endogenous Regressors

41 Pages Posted: 3 Dec 2020

See all articles by Gregory Casey

Gregory Casey

Williams College

Marc Klemp

University of Copenhagen - Department of Economics

Date Written: 2020

Abstract

We provide a simple framework for interpreting instrumental variable regressions when there is a gap in time between the impact of the instrument and the measurement of the endogenous variable, highlighting a particular violation of the exclusion restriction that can arise in this setting. In the presence of this violation, conventional IV regressions do not consistently estimate a structural parameter of interest. Building on our framework, we develop a simple empirical method to estimate the long-run effect of the endogenous variable. We use our bias correction method to examine the role of institutions in economic development, following Acemoglu et al. (2001). We find long-run coefficients that are smaller than the coefficients from the existing literature, demonstrating the quantitative importance of our framework.

JEL Classification: C100, C300, O100, O400

Suggested Citation

Casey, Gregory and Klemp, Marc, Historical Instruments and Contemporary Endogenous Regressors (2020). CESifo Working Paper No. 8716, Available at SSRN: https://ssrn.com/abstract=3740328 or http://dx.doi.org/10.2139/ssrn.3740328

Gregory Casey

Williams College ( email )

Williamstown, MA 01267
United States

Marc Klemp (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

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