A proxy variable is a variable used in a regression equation in order to:
A) report the r-squared value appropriately.
B) make the adjustment for the adjusted r-squared.
C) proxy for a confounding factor in an attempt to alleviate the endogeneity problem.
D) improve the standard errors on the treatment effect.

Question

Quizplus · Accepted Answer

A proxy variable is used to proxy or stand-in for another variable that may be difficult or impossible to measure directly. In regression analysis, a proxy variable can be used to account for a confounding factor that may be affecting both the dependent and independent variables, thus reducing the problem of endogeneity. Therefore, choice C is the correct answer. The other options are not related to the purpose of using a proxy variable.

A Proxy Variable Is a Variable Used in a Regression