Re: Instrumental variable
Posted: Thu Aug 05, 2010 9:42 pm
The bad news is that if you don't have an instrument (or some other information), there is no way to deal with endogeneity. This is the heart of what's called the identification issue.Thank you startz. What if I generate random number as error terms series and then create new series by adding the two series - the endogenous variable and the generated random numbers. Would that be completely inappropriate? I'm just trying to understand what is the best way to deal with endogeneity issue in the absense of an appropriate instrument. Thanks again!