When is it justifiable to ignore explanatory variable endogeneity in a regression model?

C-Tier
Journal: Economics Letters
Year: 2015
Volume: 137
Issue: C
Pages: 70-74

Authors (2)

Ashley, Richard A. (not in RePEc) Parmeter, Christopher F. (University of Miami)

Score contribution per author:

0.503 = (α=2.01 / 2 authors) × 0.5x C-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

The point of empirical work is commonly to test a very small number of crucial null hypotheses in a linear multiple regression setting. Endogeneity in one or more model explanatory variables is well known to invalidate such testing using OLS estimation. But attempting to identify credibly valid (and usefully strong) instruments for such variables is an enterprise which is arguably fraught and invariably subject to (often justified) criticism. As a modeling step prior to such an attempt at instrument identification, we propose a sensitivity analysis which quantifies the minimum degree of correlation between these possibly-endogenous explanatory variables and the model errors which is sufficient to overturn the rejection (or non-rejection) of a particular null hypothesis at, for example, the 5% level. An application to a classic model in the empirical growth literature illustrates the practical utility of the technique.

Technical Details

RePEc Handle
repec:eee:ecolet:v:137:y:2015:i:c:p:70-74
Journal Field
General
Author Count
2
Added to Database
2026-01-26