Endogenous variable vs instrumental variable

#1
Hi,

I've to make a presentation on research methods that happens to include endogenous and instrumental variable. Now, they are not seeming very similar to me, but still I'm failing to draw a clear line and afraid of confusing the two. Can someone kindly explain the differences and similiraries between them in plain words.

Thanks a lot!
 

staassis

Active Member
#2
Endogenous variables are correlated with the most recent random shocks (residuals) while instrumental variables are not. An example of an instrumental variable is a value taken from the previous day.