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Asymptotic Bias of OLS in the Presence of Reverse Causality

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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.
Type
Working Paper
Date
2015
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