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A Note on Parametric and Nonparametric Regression in the Presence of Endogenous Control Variables

  • Markus Frölich

    ()

This note argues that nonparametric regression not only relaxes functional form assumptions vis-a-vis parametric regression, but that it also permits endogenous control variables. To control for selection bias or to make an exclusion restriction in instrumental variables regression valid, additional control variables are often added to a regression. If any of these control variables is endogenous, OLS or 2SLS would be inconsistent and would require further instrumental variables. Nonparametric approaches are still consistent, though. A few examples are examined and it is found that the asymptotic bias of OLS can indeed be very large.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/dp2006/DP11_fr.pdf
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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2006 with number 2006-11.

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Length: 14 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:usg:dp2006:2006-11
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