Rain, Rain, Go Away: 195 Potential Exclusion-Restriction Violations for Studies Using Weather as an Instrumental Variable

Abstract

Instrumental variable (IV) analysis assumes the instrument only affects the dependent variable via its relationship with the independent variable. Other possible causal routes from the IV to the dependent variable are exclusion-restriction violations and invalidate the instrument. Weather has been widely used as an instrumental variable in social science to predict many different variables. The use of weather to instrument different independent variables represents strong prima facie evidence of exclusion violations for all studies using weather IVs. A review of 289 studies reveals 195 variables previously linked to weather: all representing potential exclusion violations. Using sensitivity analysis, I show that the magnitude of many of these violations is sufficient to overturn numerous existing IV results. I conclude with practical steps to systematically review existing literature to identify possible exclusion violations when using IV designs.

Keywords: instrumental variable, IV regression, weather, rain, exclusion restriction

JEL Classification: C360