# Tag Info

## Hot answers tagged endogeneity

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### What does "endogeneity of the industry structure" means?

Broadly speaking endogeneity means that something some variable is determined within model as opposed to outside it. More narrowly in econometrics it means correlated with the error term (Wooldridge, (...
• 57.4k
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### Using dependent variable's and exogenous variables' lags as instruments in 2SLS

Is this legit and what is the rational behind this? Yes you will find this even as a recommendation in many textbooks (e.g. see Romer Advanced Macroeconomics pp 376) so it is legit although with a ...
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### is endogeneity a problem in the first-stage regression in a two-stage least square regression?

I'm going to assume that by "conditions for instrumental variables to work" you mean "instrumental variables is consistent." However, there are other properties to consider, like ...
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### is endogeneity a problem in the first-stage regression in a two-stage least square regression?

Yes it is a problem. The first stage itself has to satisfy the same assumptions that standard OLS would and $cov(Z,\epsilon_1)\neq 0$ would violate them (see A Guide to Modern Econometrics by Verbeek)....
• 57.4k
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Adding to the excellent answer by @Alecos Papadopoulos, here are two simple numerical examples with $z=x^2+v$, $z^*$ is mean-centred $z$ and $v$ is independent from $u$, in which $E(xu)\neq 0$, $E(xz^*... • 8,564 1 vote ### Why do we treat demographic variables as being exogenous? You are completely correct that mathematically endogeneity is defined$\text{cov(X,e)}\neq0$, which is true not only when it’s correlated with omitted variable but also with measurement error or ... • 57.4k 1 vote ### Endogeneity problem with a dummy variable No, I don't see how the dummy variable you are proposing would give you the same (or even similar) analysis as in the original model. I would recommend dealing with the endogeneity in another way. ... • 136 1 vote ### Can all the regressors be endogenous in a given model? In principle, there is nothing to exclude the case where all regressors are endogenous. My issue is that the Hurlin-Dumitrescu test has to do with Granger-causality, and Granger-causality examines ... • 33.9k 1 vote ### Does endogeneity matter when neither independent variable nor error term are correlated with dependent variable? In a typical OLS model,$Y=\alpha+\beta X+\epsilon$, endogeneity exists when$E[\epsilon\,|\,X]\ne 0$, which results from$X$and$\epsilon$being correlated with one another. In your case,$Y\$ ...
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