Two applications of the random coefficient procedure: Correcting for misspecifications in a small area level model and resolving Simpson's paradox

P.A.V.B. Swamy, J.S. Mehta, George Tavlas and Stephen Hall

Economic Modelling, 2015, vol. 45, issue C, 93-98

Abstract: We apply a random-coefficient framework to deal with two problems frequently encountered in applied work. First, we use a real-world relationship to derive a sub-relationship among fewer variables without introducing any specification error to correct misspecifications in a small area level model. Second, we then use this framework to resolve Simpson's paradox. We show that this paradox does not arise if a statistical relationship between a pair of variables is derived from the corresponding real-world relationship involving all relevant variables, including the original pair, without introducing a single specification error.

Keywords: Specification error; False model; Unique coefficient; Unique error term (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:45:y:2015:i:c:p:93-98

DOI: 10.1016/j.econmod.2014.10.053

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