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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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    File URL: http://www.umass.edu/economics/publications/2015-18.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Lant Pritchett & Lawrence H. Summers, 1996. "Wealthier is Healthier," Journal of Human Resources, University of Wisconsin Press, vol. 31(4), pages 841-868.
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    Cited by:

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    3. Qiang Li & Lian An, 2020. "Corruption Takes Away Happiness: Evidence from a Cross-National Study," Journal of Happiness Studies, Springer, vol. 21(2), pages 485-504, February.
    4. Estrades, Carmen, 2015. "The Role of Export Restrictions in Agriculture Trade," 2015: Trade and Societal Well-Being, December 13-15, 2015, Clearwater Beach, Florida 229229, International Agricultural Trade Research Consortium.
    5. Lenzen, Sabrina & Gannon, Brenda & Rose, Christiern, 2020. "A dynamic microeconomic analysis of the impact of physical activity on cognition among older people," Economics & Human Biology, Elsevier, vol. 39(C).
    6. Anna Katharina Raggl, 2022. "The role of public services quality in shaping migration intentions in Central, Eastern and Southeastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3/22, pages 7-30.

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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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