The Falsification Adaptive Set in Linear Models with Instrumental Variables that Violate the Exclusion or Conditional Exogeneity Restriction
Abstract: Masten and Poirier (2021) introduced the falsification adaptive set (FAS) in linear models with a single endogenous variable estimated with multiple correlated instrumental variables (IVs). The FAS reflects the model uncertainty that arises from falsification of the baseline model. We show that it applies to cases where a conditional exogeneity assumption holds and invalid instruments violate the exclusion assumption only. We propose a generalized FAS that reflects the model uncertainty when some instruments violate the exclusion assumption and/or some instruments violate the conditional exogeneity assumption. Under the assumption that invalid instruments are not themselves endogenous explanatory variables, if there is at least one relevant instrument that satisfies both the exclusion and conditional exogeneity assumptions then this generalized FAS is guaranteed to contain the parameter of interest.
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