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Your textbook gives the following example of simultaneous causality bias of a two equation system: Y=B₁ + B,X, +u, X₁=Y+Y₁Y₁ +v₁ In microeconomics, you studied the demand and supply of goods in a single market. Let the demand (Q) and supply (Q) for the i-th good be determined as follows, Q=B₁-B₁P+u,, Q₁ =Y₁+Y₁P₁+v₁, where P is the price of the good. In addition, you typically assume that the market clears. The textbook explained a positive correlation between X, and u, for 7,0 through an argument that started from "imagine that u, is negative." Repeat this exercise here and show that there is a positive correlation between X, and "₁ 7₁> 0. (3 points) for Your textbook gives the following example of simultaneous causality bias of a two equation system: Y=B₁ + B,X, +u, X₁=Y+Y₁Y₁ +v₁ In microeconomics, you studied the demand and supply of goods in a single market. Let the demand (Q) and supply (Q) for the i-th good be determined as follows, Q=B₁-B₁P+u,, Q₁ =Y₁+Y₁P₁+v₁, where P is the price of the good. In addition, you typically assume that the market clears. The textbook explained a positive correlation between X, and u, for 7,0 through an argument that started from "imagine that u, is negative." Repeat this exercise here and show that there is a positive correlation between X, and "₁ 7₁> 0. (3 points) for
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A Simultaneous causality bias arises when the dependent variable in one equation is determined by th... View the full answer
Related Book For
Principles of Information Systems
ISBN: 978-1133629665
11th edition
Authors: Ralph Stair, George Reynolds
Posted Date:
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