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Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments (2001)
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| Venue: | Journal of Economic Perspectives |
| Citations: | 379 - 3 self |
BibTeX
@ARTICLE{Angrist01instrumentalvariables,
author = {Joshua D. Angrist and Alan B. Krueger},
title = {Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments},
journal = {Journal of Economic Perspectives},
year = {2001},
pages = {69--85}
}
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Abstract
The method of instrumental variables is a signature technique in the econometrics toolkit. The canonical example, and earliest applications, of instrumental variables involved attempts to estimate demand and supply curves. 1 Economists such as P.G. Wright, Henry Schultz, Elmer Working and Ragnar Frisch were interested in estimating the elasticities of demand and supply for products ranging from herring to butter, usually with time series data. If the demand and supply curves shift over time, the observed data on quantities and prices reflect a set of equilibrium points on both curves. Consequently, an ordinary least squares regression of quantities on prices fails to identify—that is, trace out—either the supply or demand relationship. P.G. Wright (1928) confronted this issue in the seminal application of instrumental variables: estimating the elasticities of supply and demand for flaxseed, the source of linseed oil. 2 Wright noted the difficulty of obtaining estimates of the elasticities of supply and demand from the relationship between price and quantity 1
Keyphrases
instrumental variable natural experiment supply curve p.g. wright price fails time series data signature technique ordinary least square regression ragnar frisch elmer working econometrics toolkit linseed oil equilibrium point seminal application canonical example henry schultz demand relationship
