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Math & Statistics

Instrumental Variable

Also called: IV regression, two-stage least squares, 2SLS

An instrumental variable is something that moves your predictor but affects the outcome only through it, letting you recover a causal effect despite endogeneity. It must satisfy relevance and exclusion, and the exclusion restriction is untestable — you have to argue for it. Weak instruments are worse than none, producing estimates biased towards the OLS result they were meant to fix.

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