What the Degree of Structural Autonomy Can Say about Instrument Validity
61 Pages Posted: 25 Mar 2019 Last revised: 6 Feb 2020
Date Written: February 5, 2020
The validity of instrumental variables to estimate causal eﬀects is typically justifed narratively and often remains controversial. Thus, more objective evaluation of instrument validity through data-driven methods is desirable. I build on a method to quantify the degree of confounding in multivariate linear models, which invokes arguments about the autonomy of mechanisms linking cause and eﬀect, and show how it can be used to evaluate instrument validity. Monte Carlo studies show a high accuracy of the procedure. An empirical application shows its feasibility in practice.
Keywords: instrumental variables, specification testing
JEL Classification: C36, C18
Suggested Citation: Suggested Citation