5: Causality

Question 1

main assumption necessary for causality

Answer 1

X1 has to be uncorrelated with the error term

Question 2

bias term

Answer 2

cov(X,e)/var(X)

Question 3

concerns with OLS

Answer 3

omitted variable bias
misspecification of the functional form
measurement error/attenuation bias
reverse causality/simultaneity

Question 4

direction of OVB

Answer 4

depends on cov(X1,X2) and effect of X2 on Y

Question 5

direction of misspecification

Answer 5

depends on cov(X1, X2) and effect of X2 on Y

Question 6

direction of measurement error/attenuation bias

Answer 6

biased positively if original effect is negative, and negatively if original effect is positive

because of -effect of X1 on Y, and var(e)