178 IV7 Defending the exclusion restriction

In econometrics, defending the exclusion restriction in instrumental variables (IV) is crucial, as it cannot be proven but must be argued for. This video explains how to build a credible case that your chosen instrument Z affects the outcome Y solely through the endogenous variable X. We delve into why this assumption is untestable with data alone in just-identified models and explore four common defense strategies: institutional knowledge, timing, natural experiments, and placebo tests. Learn how to shift the burden from pure statistics to robust reasoning and how top researchers build convincing arguments, illustrated with the famous Angrist and Krueger paper on compulsory schooling laws. Visit AxiomTutoring.com and subscribe to @AxiomTutoringCourses.