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I am considering two models.

One is a Poisson model where the true relationship is:

$$E( y \mid x,z)=exp(bx+cx \times z + dz+ f(x))$$

The other is a linear model:

$$E( y \mid x,z)=bx+cx \times z + dz + f(x)$$

In both, x and z are independent exogeneous variables and $f(x)$ is some deterministic non-linear function of x (specifically, in my case, $f(x)=\log \Phi(x)$ with $\Phi(x)$ being the standard normal CDF).

I believe that omitting the f(x) term biases the estimate of the $b$ term in both the linear and Poisson models. (This inconsistency is suggested for the Poisson case by an answer here.) Simulations, however, indicate that the estimate of the $c$ and $d$ terms are consistent in the OLS model, but not in the Poisson model.

I am wondering what could explain the difference. It is difficult to me to understand why these terms would be biased in the Poisson case given that $x \times z$ and $f(x)$ terms seem independent conditional on $x$. Intuitively, this tells me that once $x$ is included in the Poisson estimation, $ x \times z$ should not be biased. (Same goes for the main effect of $z$.) This is likely a mistaken intuition however, possibly related to differences in how the Frisch-Waugh-Lovell theorem applies in the two cases?

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  • $\begingroup$ What's the range of your x values? Your f(x) can be close to linear for x<0. Also, your models both omit an individual term for z. That's often not a good idea and might be contributing to a different c coefficient for the x:z interaction that you would see if you included an individual z term. $\endgroup$
    – EdM
    Commented Oct 16 at 12:48
  • $\begingroup$ Thank you very much. I have now clarified that the difference is observable even if an individual z term is added to the model. In fact, the estimate of this term's coefficient will also be biased. As for the range, the bias is observable for both positive and negative x values. In my simulations x follows a standard normal distribution. $\endgroup$
    – lippi
    Commented Oct 16 at 12:57

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