The Fed – Correcting for Endogeneity in Models with Bunching

September 2020

Correcting for Endogeneity in Models with Bunching

Carolina Caetano, Gregorio Caetano, & Eric Nielsen


We show that in models with endogeneity, bunching at the lower or upper boundary of the distribution of the treatment variable may be used to build a correction for endogeneity. We derive the asymptotic distribution of the parameters of the corrected model, provide an estimator of the standard errors, & prove the consistency of the bootstrap. An empirical application reveals that time spent watching television, corrected for endogeneity, has roughly no net effect on cognitive skills & a significant negative net effect on non-cognitive skills in children.


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Last Update:
September 18, 2020

Source: Federal Reserves

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