Tag Archives: Statistics & Econometrics

Econometrics — science built on untestable assumptions  Just what is the causal content attributed to structural models in econometrics? And what does this imply with respect to the interpretation of the error term? … Consider briefly the testability of the assumptions brought to light in this section. Given these assumptions directly involve the factors omitted in the error term, testing these empirically seems impossible without information about what is...

Why econometric models by necessity are endlessly misspecified The impossibility of proper specification is true generally in regression analyses across the social sciences, whether we are looking at the factors affecting occupational status, voting behavior, etc. The problem is that as implied by the three conditions for regression analyses to yield accurate, unbiased estimates, you need to investigate a phenomenon that has underlying mathematical...

Do any benefits of alcohol outweigh the risks? .[embedded content] Identifying the data generating process sure is important if we want to be able to understand data. Finding a correlation between drinking alcohol and mortality does not explain anything, and certainly does not mean that you have been able to identify a causal relation between variables. Regressing on covariates is not enough. There are tons of alternative explanations for the (alleged)...

Discovering causes from correlations .[embedded content]

The problems we face when using instrumental variables (student stuff) .[embedded content]

Användandet av instrumentalvariabler används numera flitigt bland ekonomer och andra samhällsforskare. Inte minst när man vill försöka gå bakom statistikens ‘korrelationer’ och också säga något om ‘kausalitet.’ Tyvärr brister det ofta rejält i tolkningen av de resultat man får med hjälp av den vanligaste metoden som används för detta syfte — statistisk regressionsanalys. Ett exempel från skolområdet belyser detta väl. Ibland hävdas det bland skoldebattörer och politiker att...

Introduction to instrumental variables .[embedded content] Great presentation, but maybe Angrist  should also have pointed out the mistake many economists do when they use instrumental variables analysis and think that their basic identification assumption is empirically testable. It is not. And just swapping an assumption of residuals being uncorrelated with the independent variables with the assumption that the same residuals are uncorrelated with an...

Which causal inference method is the best one? .[embedded content]

Graphical causal models and collider bias Why would two independent variables suddenly become dependent when we condition on their common effect? To answer this question, we return again to the definition of conditioning as filtering by the value of the conditioning variable. When we condition on Z, we limit our comparisons to cases in which Z takes the same value. But remember that Z depends, for its value, on X and Y. So, when comparing cases where Z...

Econometrics — science based on whimsical assumptions It is often said that the error term in a regression equation represents the effect of the variables that were omitted from the equation. This is unsatisfactory … There is no easy way out of the difficulty. The conventional interpretation for error terms needs to be reconsidered. At a minimum, something like this would need to be said: The error term represents the combined effect of the omitted...