174 IV3 Reverse causality path diagram
About this lesson
This video explains how reverse causality leads to endogeneity in econometrics, building on previous concepts. We visualize endogeneity with a path diagram to make the structural story clear, showing how relationships can run in both directions. The core problem arises when the error term is connected to our explanatory variable, violating the assumptions of Ordinary Least Squares. This video offers a preview of how an instrumental variable can be used to solve this issue by providing clean variation in the explanatory variable. Visit AxiomTutoring.com and subscribe to @AxiomTutoringCourses.
Walkthrough
Follow the reasoning, step by step.
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