Class 15: Instrumental Variables Part II

Today, we employ the IV estimator in the context of demand estimation for cigarettes. We also introduce the idea of a “fixed effect” in a regression specification.


  • Understand and use an IV estimator in R
  • Define and explain a fixed effect in a regression context
  • Understand and describe the problem of weak instruments and how to test for weak instruments empirically


  • Continue work with the CDC Tax Burden on Tobacco data
  • Estimate the price elasticity of demand for cigarettes using taxes as an instrument for price