Practical Considerations for Questionable IVs

Abstract

In this article, we examine several techniques that allow for the construction of bounds estimates based on instrumental variables, even when the instruments are not valid. We introduce the plausexog and imperfectiv commands, which implement methods described by Conley, Hansen, and Rossi (2012, Review of Economics and Statistics 94: 260–272) and Nevo and Rosen (2012b, Review of Economics and Statistics 94: 659–671). We examine the performance of these bounds under a range of circumstances, which leads to several practical results related to the informativeness of the bounds in different situations.