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arXiv · 2504.04056

Estimating Demand with Recentered Instruments

Kirill Borusyak·Mauricio Caceres Bravo·Peter Hull
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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.

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Kirill Borusyak, Mauricio Caceres Bravo, Peter Hull. 2025-04-05. Estimating Demand with Recentered Instruments. https://arxiv.org/abs/2504.04056

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