Gabaix, Xavier <br/><br/>
Granular Instrumental Variables 

 -  Journal of Political Economy  2024 
 - 2274-2303 
<br/><br/> We develop a new method to construct instruments in a broad class of economic environments. In the economies we study, a few large firms, industries, or countries account for an important share of economic activity. Idiosyncratic shocks to these large players significantly affect aggregate outcomes and are valid instruments. We provide a methodology to extract these idiosyncratic shocks to create granular instrumental variables (GIVs), which are size-weighted sums of idiosyncratic shocks. We show how GIVs enable us to estimate causal parameters, such as elasticities and multipliers, and are applicable in a broad range of empirically relevant settings. 
<br/><br/><label>ISSN: </label>0022-3808 
<br/><br/><label>Subjects--Topical Terms: </label><br/> Economic Activity<br/> Economic Environments<br/> Granular Instrumental Variables<br/>Idiosyncratic Shocks