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Econometrics 2017, 5(1), 8; doi:10.3390/econometrics5010008

Endogeneity, Time-Varying Coefficients, and Incorrect vs. Correct Ways of Specifying the Error Terms of Econometric Models

1
Federal Reserve Board (Retired), Washington, DC 20551, USA
2
Department of Mathematics (Retired), Temple University, Philadelphia, PA 19122, USA
3
Department of Mathematics (Retired), American University, Washington, DC 20016, USA
*
Author to whom correspondence should be addressed.
Academic Editors: Gilles Dufrénot, Fredj Jawadi and Alexander Mihailov
Received: 5 September 2016 / Revised: 5 December 2016 / Accepted: 8 December 2016 / Published: 3 February 2017
View Full-Text   |   Download PDF [292 KB, uploaded 3 February 2017]

Abstract

Using the net effect of all relevant regressors omitted from a model to form its error term is incorrect because the coefficients and error term of such a model are non-unique. Non-unique coefficients cannot possess consistent estimators. Uniqueness can be achieved if; instead; one uses certain “sufficient sets” of (relevant) regressors omitted from each model to represent the error term. In this case; the unique coefficient on any non-constant regressor takes the form of the sum of a bias-free component and omitted-regressor biases. Measurement-error bias can also be incorporated into this sum. We show that if our procedures are followed; accurate estimation of bias-free components is possible. View Full-Text
Keywords: endogenous variable; exogenous variable; time-varying coefficient; unique coefficient and error term; accurate estimation of bias-free component endogenous variable; exogenous variable; time-varying coefficient; unique coefficient and error term; accurate estimation of bias-free component
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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MDPI and ACS Style

Swamy, P.; Mehta, J.S.; Chang, I.-L. Endogeneity, Time-Varying Coefficients, and Incorrect vs. Correct Ways of Specifying the Error Terms of Econometric Models. Econometrics 2017, 5, 8.

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