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Abstract for:

Poorly Measured Confounders Are More Useful On the Left than On the Right

Zhuan  Pei,  Jörn-Steffen  Pischke,  Hannes  Schwandt,  April 2018
Paper No' CEPDP1539: | Full paper (pdf)
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Keywords: balancing, variable addition, robustness checks, specification testing, Hausman test

JEL Classification: C31; C52

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: CEP Discussion Papers
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Researchers frequently test identifying assumptions in regression based research designs (which include instrumental variables or difference-in-differences models) by adding additional control variables on the right hand side of the regression. If such additions do not affect the coefficient of interest (much) a study is presumed to be reliable. We caution that such invariance may result from the fact that the observed variables used in such robustness checks are often poor measures of the potential underlying confounders. In this case, a more powerful test of the identifying assumption is to put the variable on the left hand side of the candidate regression. We provide derivations for the estimators and test statistics involved, as well as power calculations, which can help applied researchers interpret their findings. We illustrate these results in the context of estimating the returns to schooling.