Estimating Demand with Recentered Instruments
Econometrics
2025-04-08 v1
Abstract
We develop a new approach to estimating flexible demand models with exogenous supply-side shocks. Our approach avoids conventional assumptions of exogenous product characteristics, putting no restrictions on product entry, despite using instrumental variables that incorporate characteristic variation. The proposed instruments are model-predicted responses of endogenous variables to the exogenous shocks, recentered to avoid bias from endogenous characteristics. We illustrate the approach in a series of Monte Carlo simulations.
Cite
@article{arxiv.2504.04056,
title = {Estimating Demand with Recentered Instruments},
author = {Kirill Borusyak and Mauricio Caceres Bravo and Peter Hull},
journal= {arXiv preprint arXiv:2504.04056},
year = {2025}
}