NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Instrument Relevance in Multivariate Linear Models: A Simple Measure

John Shea

NBER Technical Working Paper No. 193
Issued in March 1996
NBER Program(s):Monetary Economics

The correlation between instruments and explanatory variables is a key determinant of the performance of the instrumental variables estimator. The R-squared from regressing the explanatory variable on the instrument vector is a useful measure of relevance in univariate models, but can be misleading when there are multiple endogenous variables. This paper proposes a computationally simple partial R- squared measure of instrument relevance for multivariate models.

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Document Object Identifier (DOI): 10.3386/t0193

Published: Review of Economics and Statistics, Vol. 79, no. 2 (May 1997): 348-352.

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