FEVD: Just IV or just mistaken?

Trevor Breusch, Michael Ward, Hoa Thi Minh Nguyen, Tom Kompas

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24 Citations (Scopus)


Fixed effects vector decomposition (FEVD) is simply an instrumental variables (IV) estimator with a particular choice of instruments and a special case of the well-known Hausman-Taylor IV procedure. Plumper and Troeger (PT) now acknowledge this point and disown the three-stage procedure that previously defined FEVD. Their old recipe for SEs, which has regrettably been used in dozens of published research papers, produces dramatic overconfidence in the estimates. Again PT concede the point and now adopt the standard IV formula for SEs. Knowing that FEVD is an application of IV also has the benefit of focusing attention on the choice of instruments. Now it seems PT claim that the FEVD instruments are always the best choice, on the grounds that one cannot know whether any potential instrument is correlated with the unit effect. One could just as readily make the same specious claim about other estimators, such as ordinary least squares, and support it with similar Monte Carlo assumptions and evidence.
Original languageEnglish
Pages (from-to)165 - 169
Number of pages5
JournalPolitical Analysis
Issue number2
Publication statusPublished - 2011
Externally publishedYes

Cite this

Breusch, T., Ward, M., Nguyen, H. T. M., & Kompas, T. (2011). FEVD: Just IV or just mistaken? Political Analysis, 19(2), 165 - 169. https://doi.org/10.1093/pan/mpr012