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Asymptotic Bias of OLS in the Presence of Reverse Causality

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  • Basu, Deepankar

    (Department of Economics, University of Massachusetts, Amherst)

Abstract

In this paper, I derive an expression for the asymptotic bias in the OLS estimator of the partial effect of a regressor on the dependent variable when there is reverse causality and all variables in the model are covariance stationary. I show that the sign of the asymptotic bias depends only on the signs of the bi-directional causal effects.

Suggested Citation

  • Basu, Deepankar, 2015. "Asymptotic Bias of OLS in the Presence of Reverse Causality," UMASS Amherst Economics Working Papers 2015-18, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2015-18
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    1. Panizza, Ugo & Presbitero, Andrea F., 2014. "Public debt and economic growth: Is there a causal effect?," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 21-41.
    2. Lant Pritchett & Lawrence H. Summers, 1996. "Wealthier is Healthier," Journal of Human Resources, University of Wisconsin Press, vol. 31(4), pages 841-868.
    3. Filmer, Deon & Pritchett, Lant, 1999. "The impact of public spending on health: does money matter?," Social Science & Medicine, Elsevier, vol. 49(10), pages 1309-1323, November.
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    More about this item

    Keywords

    Reverse causality; simultaneity bias.;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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