# Instrumental Variable

*Math & Statistics — Finicade finance glossary*

An instrumental variable moves your predictor but affects the outcome only through it, letting you recover a causal effect despite endogeneity.

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.

**Also known as:** IV regression, two-stage least squares, 2SLS

**Related terms:** [Endogeneity](https://finicade.com/glossary/endogeneity), [Omitted Variable Bias](https://finicade.com/glossary/omitted-variable-bias), [Regression](https://finicade.com/glossary/regression), [Correlation vs Causation](https://finicade.com/glossary/correlation-vs-causation), [Ordinary Least Squares](https://finicade.com/glossary/ordinary-least-squares)

**Taught in:** Regression Range — Endogeneity & Instrumental Variables

Source: https://finicade.com/glossary/instrumental-variable