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Article

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
Econometrics 2017, 5(1), 8; https://doi.org/10.3390/econometrics5010008
Received: 5 September 2016 / Revised: 5 December 2016 / Accepted: 8 December 2016 / Published: 3 February 2017
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
MDPI and ACS Style

Swamy, P.A.V.B.; 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. https://doi.org/10.3390/econometrics5010008

AMA Style

Swamy PAVB, Mehta JS, Chang I-L. Endogeneity, Time-Varying Coefficients, and Incorrect vs. Correct Ways of Specifying the Error Terms of Econometric Models. Econometrics. 2017; 5(1):8. https://doi.org/10.3390/econometrics5010008

Chicago/Turabian Style

Swamy, P.A.V.B., Jatinder S. Mehta, and I-Lok Chang. 2017. "Endogeneity, Time-Varying Coefficients, and Incorrect vs. Correct Ways of Specifying the Error Terms of Econometric Models" Econometrics 5, no. 1: 8. https://doi.org/10.3390/econometrics5010008

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