Correcting for Endogeneity in Models with Bunching

53 Pages Posted: 28 Sep 2020

See all articles by Carolina Caetano

Carolina Caetano

University of Georgia

Gregorio Caetano

University of Georgia

Eric Reed Nielsen

Board of Governors of the Federal Reserve System

Date Written: September, 2020

Abstract

We show that in models with endogeneity, bunching at the lower or upper boundary of the distribution of the treatment variable may be used to build a correction for endogeneity. We derive the asymptotic distribution of the parameters of the corrected model, provide an estimator of the standard errors, and prove the consistency of the bootstrap. An empirical application reveals that time spent watching television, corrected for endogeneity, has roughly no net effect on cognitive skills and a significant negative net effect on non-cognitive skills in children.

JEL Classification: C20, C21, C24

Suggested Citation

Caetano, Carolina and Caetano, Gregorio and Nielsen, Eric Reed, Correcting for Endogeneity in Models with Bunching (September, 2020). FEDS Working Paper No. 2020-80, Available at SSRN: https://ssrn.com/abstract=3699644 or http://dx.doi.org/10.17016/FEDS.2020.080

Carolina Caetano (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

Gregorio Caetano

University of Georgia ( email )

Athens, GA 30602-6254
United States

Eric Reed Nielsen

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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