Testability of the exclusion restriction in continuous instrumental variable models

06/25/2018

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by   Florian Gunsilius, et al.

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In this note we prove Pearl's conjecture, showing that the exclusion restriction of an instrument cannot be tested without structural assumptions in general instrumental variable models with a continuously distributed endogenous variable. This stands in contrast to models with a discretely distributed endogenous variable, where tests have been devised in the literature, and shows that there is a fundamental difference between the continuous and the discrete case.