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

Abstract

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

Burauel, Patrick, What the Degree of Structural Autonomy Can Say about Instrument Validity (February 5, 2020). Available at SSRN: https://ssrn.com/abstract=3344981 or http://dx.doi.org/10.2139/ssrn.3344981

Patrick Burauel (Contact Author)

DIW Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

FU Berlin ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

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