Generalized Instrumental Inequalities: Testing the IV Independence Assumption

35 Pages Posted: 19 Nov 2015 Last revised: 30 Oct 2018

See all articles by Désiré Kédagni

Désiré Kédagni

Iowa State University - Department of Economics

Ismael Mourifie

University of Toronto - Department of Economics

Date Written: March 15, 2017

Abstract

This paper proposes a new set of testable implications of the instrumental variable (IV) independence assumption: generalized instrumental inequalities. In our leading case of binary outcome, we show that the generalized instrumental inequalities are necessary and sufficient to detect all observable violations of the IV independence assumption. To test the generalized instrumental inequalities, we propose an approach combining a sample splitting procedure and intersection bounds inferential methods. This idea allows one to easily implement the test using the Stata packages of Chernozhukov, Kim, Lee, and Rosen (2015). We apply our proposed strategy to assess the validity of the IV independence assumption for various instruments used in the return to college literature.

Keywords: Instrumental variable, Independence assumption, Sharp inequalities, Intersection bounds, Quarter of birth

JEL Classification: C12, C15, C21, C24

Suggested Citation

Kédagni, Désiré and Mourifie, Ismael, Generalized Instrumental Inequalities: Testing the IV Independence Assumption (March 15, 2017). Available at SSRN: https://ssrn.com/abstract=2692274 or http://dx.doi.org/10.2139/ssrn.2692274

Désiré Kédagni

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States

Ismael Mourifie (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

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