What does OLS identify under the zero conditional mean assumption?

Federico Crudu (), Giovanni Mellace, Joeri Smits () and Michael Knaus
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Joeri Smits: Harvard University

No 3/2022, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

Abstract: Many econometrics textbooks imply that under mean independence of the regressors and the error term, the OLS estimand has a causal interpretation. We provide counterexamples of data-generating processes (DGPs) where the standard assumption of zero conditional mean error is satisfied, but where OLS identifies a pseudo-parameter that does not have a causal interpretation. No such counterexamples can be constructed when the assumption needed is stated in the potential outcome framework, highlighting the fact that causal inference requires causal, and not just stochastic, assumptions.

Keywords: OLS; zero conditional mean error; causal inference (search for similar items in EconPapers)
JEL-codes: C10 C18 C21 C31 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2022-02-23, Revised 2022-11-15
New Economics Papers: this item is included in nep-ecm and nep-ore
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Working Paper: What does OLS identify under the zero conditional mean assumption? (2022)
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