Solving endogeneity without instruments. An application from Lewbel
Keywords:
Endogeneity, econometrics, comparative analysis, instrumental variables, JEL: C13, C26, C36Abstract
To this day, there has been an important academic motivation for understanding causal relationships to make robust statistical inference. However, it is very common to face endogeneity problems and in practice finding instruments is usually complex. Although endogeneity may be due to different interaction mechanisms and relationships between the regressors and the error response variables, the effect it causes is the inconsistency in the estimation, which means that the results are not responding adequately to solving the problem. proposed. Hence, the motivation for research and methodologies that seek to correct endogeneity without resorting to the use of external instruments. In this working paper, we start by considering that the inconsistency is due to a measurement error in the endogenous variable, and solution mechanisms are explored to correct the bias. Given the nature of the data, the chosen methodology is that proposed by Lewbel (1997). Finally, an application is made to an empirical exercise using the databases provided by Stock and Watson (2007), concluding with the solution to endogeneity problems and the difference between the solution found in the research and other econometric studies.
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