Rain, Rain, Go Away: 176 Potential Exclusion-Restriction Violations for Studies Using Weather as an Instrumental Variable
112 Pages Posted: 2 Dec 2020 Last revised: 1 Jul 2021
Date Written: July 1, 2021
Instrumental variable (IV) analysis assumes that the instrument only affects the dependent variable via its relationship with the independent variable. Other possible causal routes from the IV to the dependent variable are exclusion-restriction violations and make the instrument invalid. Weather has been widely used as an instrumental variable in social science to predict many different variables. The use of weather to instrument different independent variables represents strong prima facie evidence of exclusion violations for all studies using weather as an IV. A review of 279 studies reveals 176 variables which have been linked to weather: all of which represent potential exclusion violations. I show that the magnitude of several of these violations is sufficient overturn many existing IV results. I conclude with practical steps to systematically review existing literature to identify possible exclusion violations when using IV designs. I demonstrate how sensitivity analysis can quantify the vulnerability of a particular IV estimate to exclusion restriction violations in the literature.
Keywords: instrumental variable, IV regression, weather, rain, exclusion restriction
JEL Classification: C360
Suggested Citation: Suggested Citation