What does OLS identify under the zero conditional mean assumption?

Federico Crudu (), Giovanni Mellace and Joeri Smits ()

Department of Economics University of Siena from Department of Economics, University of Siena

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)
Date: 2022-02
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Working Paper: What does OLS identify under the zero conditional mean assumption? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:872

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