Selecting Instrumental Variables: A Graph-Theoretic Approach

48 Pages Posted: 1 Sep 2013

See all articles by Piyachart Phiromswad

Piyachart Phiromswad

Sasin of Chulalongkorn University

Kevin D. Hoover

Duke University - Departments of Economics and Philosophy

Date Written: August 28, 2013

Abstract

An algorithm is developed for the empirical selection of valid instrumental variables based on graph-theoretic causal search (or Bayes-net) methodologies for directed cyclical graphs. The method also helps to identify causal structure when the underlying relationships are simultaneous or cyclical, as well as recursive. The method is illustrated using cross-country data set with 87 variables for 72 countries.

Keywords: instrumental variables, Bayes nets, causal search, directed cyclical graphs, cross-country growth

JEL Classification: C01, C30, C36

Suggested Citation

Phiromswad, Piyachart and Hoover, Kevin D., Selecting Instrumental Variables: A Graph-Theoretic Approach (August 28, 2013). Available at SSRN: https://ssrn.com/abstract=2318552 or http://dx.doi.org/10.2139/ssrn.2318552

Piyachart Phiromswad

Sasin of Chulalongkorn University ( email )

Bangkok 10330
Thailand

Kevin D. Hoover (Contact Author)

Duke University - Departments of Economics and Philosophy ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

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