NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments

Joshua Angrist, Alan B. Krueger

NBER Working Paper No. 8456
Issued in September 2001
NBER Program(s):   LS   PE

The method of instrumental variables was first used in the 1920s to estimate supply and demand elasticities, and later used to correct for measurement error in single-equation models. Recently, instrumental variables have been widely used to reduce bias from omitted variables in estimates of causal relationships such as the effect of schooling on earnings. Intuitively, instrumental variables methods use only a portion of the variability in key variables to estimate the relationships of interest; if the instruments are valid, that portion is unrelated to the omitted variables. We discuss the mechanics of instrumental variables, and the qualities that make for a good instrument, devoting particular attention to instruments that are derived from 'natural experiments.' A key feature of the natural experiments approach is the transparency and refutability of identifying assumptions. We also discuss the use of instrumental variables in randomized experiments.

download in pdf format
   (174 K)

email paper

This paper is available as PDF (174 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w8456

Published: Angrist, Joshua D. and Alan B. Krueger. "Instrumental Variables And The Search For Identification: From Supply And Demand To Natural Experiments," Journal of Economic Perspectives, 2001, v15(4,Fall), 69-85. citation courtesy of

Users who downloaded this paper also downloaded these:
Blanchard and Quah w2737 The Dynamic Effects of Aggregate Demand and Supply Disturbances
Staiger and Stock t0151 Instrumental Variables Regression with Weak Instruments
Lee and Lemieux w14723 Regression Discontinuity Designs in Economics
Duflo w7860 Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment
Angrist and Krueger t0150 Split Sample Instrumental Variables
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us