Instrumental variables

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In statistics, econometrics, epidemiology and related disciplines, the quasi-experimental method of instrumental variables (IV) is used to estimate causal relationships when controlled experiments are not feasible or when a treatment is not successfully delivered to every unit in a randomized experiment. Intuitively, IVs are used when an explanatory (also known as independent or predictor) variable of interest is correlated with the error term (endogenous), in which case ordinary least squares and ANOVA give biased results. When used, a valid instrument changes the explanatory variable (the variable correlated with the endogenous variable) but has no independent effect on the dependent variable and is not correlated with the error term, thus allowing a researcher or analyst to uncover the true causal effect of the explanatory variable on the dependent variable. Instrumental variable methods allow for consistent estimation when the explanatory variables (covariates) are correlated with the...

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