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

Markus Frölich ()

No 2126, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: 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.

Keywords: endogeneity; nonparametric regression; instrumental variables (search for similar items in EconPapers)
JEL-codes: C13 C14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2006-05
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Working Paper: A Note on Parametric and Nonparametric Regression in the Presence of Endogenous Control Variables (2006)
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