Estimating demand with recentered instruments

Kirill Borusyak, Mauricio Caceres Bravo, Peter Hull

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.

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Year of publication:	[2025]
Authors:	Borusyak, Kirill ; Caceres Bravo, Mauricio ; Hull, Peter
Publisher:	[London] : Cemmap, Centre for Microdata Methods and Practice, The Institute for Fiscal Studies, Department of Economics, UCL
Subject:	Nachfrage \| Demand \| Schock \| Shock \| Schätztheorie \| Estimation theory

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