6 votes
Accepted

Is this an an endogeneity/simultaneity problem?

Let us consider Situation 1. Let us assume that $\rho$ is observed. If it does not work when $\rho$ is observed, there is no reason why it (using a proxy of $\rho$ as instrument) should work when $\...
user avatar
  • 2,039
5 votes
Accepted

Some confusions about instrumental variable (econometrics)

Endogenous variables are correlated with the error terms and z is correlated with endogenous variable. Doesn't this imply that z is correlated with error terms? No it doesn't. For mean-...
user avatar
4 votes
Accepted

Endogenous growth model with externalities

Writing the production function in this way was most popularized by Lucas (1988) in 'On the Mechanics of Economic Development', though he used an externality on human capital. You can read through the ...
user avatar
  • 316
3 votes

Technology as an endogenous economic variable

As the other answer says there is whole literature on the subject. In fact this is not even new subject, in 2018 Romer was awarded Nobel Prize in economics precisely for his work on endogenous growth. ...
user avatar
  • 43.6k
3 votes
Accepted

What is the example of inaccurate impact due to endogeneity?

Endogeneity can arise from several reasons and in each case the explanation will be slightly different. I won't show full review of all possible reasons but just two important examples: Simultaneity ...
user avatar
  • 43.6k
3 votes

Confounding versus endogenous variables. What is their relative hierarchical position?

The question is not totally clear, but I will attempt to give you some guidance. To answer your first questions, confounding variables are not a type of endogenous variable. We do not observe nor ...
user avatar
  • 5,434
3 votes

Does endogeneity matter when neither independent variable nor error term are correlated with dependent variable?

Assume the simplest linear regression model $$y = bx + u$$ The OLS etimator for $b$ is $$\hat b_{OLS} = \frac {\sum x_iy_i}{\sum x_i^2} = b + \frac {\sum x_ie_i}{\sum x_i^2}$$ Whatever the true $b$...
user avatar
3 votes

Selection bias - Will multiple regressions solve the problem?

What you are referring to is two-stage least squares. This is an instrumental variable commonly applied to correct for endogeniety and selection bias. It is a pretty hot topic in economics at the ...
user avatar
  • 3,721
2 votes

Count panel models for endogenous regressors

Windmeijer (2000, Economics Letters) presents a treatment of the estimation of count-data models with fixed effects and endogeneity. http://www.sciencedirect.com/science/article/pii/...
user avatar
  • 146
2 votes
Accepted

Justification for my Random Effects estimation

Your first point is valid for not using fixed effects as you are interested in the entire border not just these 16 roads. Random effects can be advantageous when you have such a small sample compared ...
user avatar
1 vote

Technology as an endogenous economic variable

The whole endogenous technological change literature, a.k.a endogenous growth models, is about how various market factors affect entrepreneurs or the R&D sector conducting technological ...
user avatar
  • 2,194
1 vote
Accepted

Can missing data cause endogeneity problem?

Welcome. So your question is: In the Hausman and Taylor (1981, HT hereafter) model without selectivity, FEM is usually specified as exogenous, but if selection involves, can we just specify FEM as ...
user avatar
  • 2,039
1 vote
Accepted

Instrumental variable analysis for non-linear endogenous variable

If $Cov(x_1, \varepsilon_i)\ne 0$, it is probably the case that $Cov(x_1^2, \varepsilon)\ne 0$, and you would need an instrument for $x_1^2$. If $z$ is your instrument for $x_1$, then as Oda said, it ...
user avatar
1 vote
Accepted

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, (...
user avatar
  • 43.6k
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 ...
user avatar
  • 43.6k
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. ...
user avatar
  • 136
1 vote
Accepted

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 ...
user avatar
  • 43.6k
1 vote

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 ...
user avatar
  • 9,155
1 vote

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)....
user avatar
  • 43.6k
1 vote

Some confusions about instrumental variable (econometrics)

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^*...
user avatar
  • 7,270
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 ...
user avatar
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, $Y$ ...
user avatar
  • 14.7k
1 vote

Testing for Endogeneity

I looked a bit more into this and I think I found the confirmation of my suspicion into this article, which describes the command ivreg2 in STATA. I am not a super-techy econometrician but from my ...
user avatar
  • 668
1 vote
Accepted

Testing for Endogeneity

(i) I think your idea makes sense. Under the null, $[X,Z]$ is orthogonal to $\varepsilon$. Under the alternative, $X$ is correlated with $\varepsilon$. (ii) Your statement that it's "basically a test ...
user avatar
  • 2,039

Only top scored, non community-wiki answers of a minimum length are eligible