Aggregation and the Endogeneity Problem

  title={Aggregation and the Endogeneity Problem},
  author={J Shin},
This paper investigates the combined effects of the aggregation and endogeneity problems when there exists a correlation between explanatory variables and the error term in the micro equation. Comparing OLS estimates on the basis of an asymptotic-square-bias criterion, the analysis indicates that aggregate equations are in general subject to less endogeneity due to the synchronization effect. The trade-off between aggregation and endogeneity biases is examined and the conditions under which the… CONTINUE READING