The Input-Output Approach to Instrument Selection
John Shea
,
2
(
11
)
Journal of Business and Economic Statistics
145-155
April
1993
Abstract
This article proposes a new method of selecting demand-shift instruments for disaggregated industries. I use prior information from input-output tables to identify industries whose output fluctuations are likely to function as approximately exogenous demand shocks for other industries. After motivating this idea theoretically, I implement the input-output approach using data from the 1977 detailed input-output study. I conduct a systematic instrument search for over 450 U.S. manufacturing industries and find over 200 industries possessing plausible instruments.