# Does endogeneity matter when neither independent variable nor error term are correlated with dependent variable? if the double arrows show that X and the error term are correlated, but that neither variable affects Y, is endogeneity a problem in this scenario? Why or why not?

• Google the formula for omitted variable bias. – Dimitriy V. Masterov Feb 8 '18 at 23:33
• Is that figure a formal DAG? – Carlos Cinelli Feb 16 '18 at 6:55

Endogeneity is a problem when you have a regression model

$$y=X\beta+\epsilon$$

and

$$E(\epsilon | X) \neq 0$$

But if you assume that neither $X$ nor $\epsilon$ affects $y$ then the above model is mis-specified. In other words, $y$ is not a function of $X$ or $\epsilon$ but rather of something else. So there is no point in discussing $X$ or $\epsilon$ when talking about $y$.

Endogeneity can only be discussed conditional on the above relationship ($y=X\beta+\epsilon$) being true. Otherwise (for example, if $y=W\gamma+\nu$), then you need to discuss endogeneity in terms of $W$ and $\nu$.

When you say a variable is endogenous, you need to specify "endogeneous with respect to what other variable?". I in case of $y=W\gamma+\nu$, if $E(\nu|W)\neq0$, i.e. $W$ is endogenous, then $W$ is endogenous with respect to $y$.