 In this case, a model given by
can be written in terms of observables and error terms as
Since both formula_30 and formula_31 depend on formula_27, they are correlated, so the OLS estimation of formula_3 will be biased downward.Measurement error in the dependent variable, formula_34, does not cause endogeneity, though it does increase the variance of the error term.Suppose that two variables are codetermined, with each affecting the other according to the following "structural" equations