Instrumental Variables: An Econometrician's Perspective

Abstract

I review recent work in the statistics literature on instrumental variables methods from an econometrics perspective. I discuss some of the older, economic, applications including supply and demand models and relate them to the recent applications in settings of randomized experiments with noncompliance. I discuss the assumptions underlying instrumental variables methods and in what settings these may be plausible. By providing context to the current applications a better understanding of the applicability of these methods may arise.

Keywords: simultaneous equations models, randomized experiments, potential outcomes, noncompliance, selection models, instrumental variables

JEL Classification: C01