Question

Mark as true or false and briefly explain the reason

6. If you have a problem of simultaneous causality, you can address this by making sure that all possible omitted variables are added to your regression as control variables.
7. When you have data on the price and quantity sold of a good, an OLS regression of log quantity on log price will normally give you a consistent estimate of the price elasticity of demand for that good.

Answer 1

Hi,

(6) False

Simultaneity is where the explanatory variable is calculated in combination with the dependent variable. X induces Y, in other words, but Y also affects X. It is one cause of indigenousness (the other two are missing variables and error in measurement). Reverse causation is a similar bias, where Y causes X (but X does not cause Y).

Some of the most important problems in regression analysis occur when missing variables influence the relationship between the dependent variable and the explanatory variables used. The omitted variables problem is one of the most critical problems with regression analysis. The traditional solution to the issue of omitted variables is to find instruments or substitutes for the omitted variables but this solution requires certain assumptions that are rarely met in practice.

(7) True

The idea that the elasticity is measured in terms of percentage. Of course, the ordinary least square coefficients provide an estimation of the effect on the dependent variable expressed in Y units of a unit shift in the independent variable, X. These are not elastic coefficients. The convention's elasticity of demand is an estimate of the elasticity at the point of the means. Know both lines of OLS regression are going to go through the point of means. The largest weight of the data used to estimate the coefficient at this point is. The elasticity of the variable is calculated directly by the double log transformation of the data. In estimating the demand functions, it is common to use double log transformation of all variables to get estimates of all the different elasticities of the demand curve