Instrumental variables question: what types of variables can be used?

[zd blizar]

Hello,

My question isn't really about Stata, but more about econometrics. It has to do with instrumental variables. I want to use two stage least squares to solve an endogeneity problem. I have 1 endogenous variable that I need to take care of. Do instruments have to be continuous variables? or can they also be binary or categorical variables? I have 2 potentially great instrumental variables, however, one is binary and the other is categorical. Thank you

Zach

[Maye Ehab]

Hello zd,

I would recommend that you read Angrist and Pischke's book. It helped me a lot when I started using IVs.

Good luck.

[Phil Bromiley]

While you're always better off knowing more as Maye suggests, the simple answer is you can use binary or categorical variables as instruments.