IV estimation

Instrumental Variable (IV) estimation is a statistical method used to determine causal relationships when direct measurement is complicated by factors like reverse causality or hidden variables. Essentially, it uses a special variable, called an "instrument," that influences the independent variable but does not directly affect the dependent variable, except through that independent variable. This helps isolate the true effect of one variable on another, providing a more accurate estimate of causality. IV is especially useful in economics and social sciences where controlled experiments are difficult, ensuring that findings reflect actual causal relationships rather than mere correlations.