Class 19: Instrumental Variables, Part I

Published

March 24, 2026

Today we’ll formally introduce instrumental variables and discuss some of the thorny issues associated with IV in practice (namely, testing for instrument validity and interpreting the results).

Objectives

  • Understand the concept of instrumental variables and how they can be used to estimate causal effects
  • List and explain the key assumptions for a “good” instrument
  • Define and explain a local average treatment effect

Activities

  • Work with simulated data to understand IV mechanics
  • Discuss practical issues with IV (weak instruments, exclusion restriction)