Question

consider the figure below, which depicts the relationship between a pandemic-related lockdown and an economic recession. the research question of interest is: does a pandemic-related lockdown cause recession? a. write down all the paths in the diagram from lockdown to recession (that is, the combination of nodes and arrows that go from lockdown to recession). to make life simpler (there are a lot of paths in this diagram), you can ignore any path that goes through stimulus. b. of these paths, which are front door paths? c. what would happen if we controlled for unemployment? how would it effect our causal estimate of lockdown on recession? d. is it possible to measure each of the variables adequately? (in other words, would it be more accurate to draw any of the variables as unobservable?) e. list one variables and/or paths not depicted in the diagram that may be relevant to identify the answer to the research question. in other words, is there anything missing from the dag that might affect the identification strategy implied by the dag as drawn?

Answer 1

The paths from lockdown to recession include aggregate demand and unemployment. Controlling for unemployment would weaken the causal estimate. All variables can be adequately measured. Government intervention is a relevant variable that is missing from the diagram.

Step-by-step explanation:

a. The paths in the diagram from lockdown to recession are:

1. Lockdown -> Aggregate demand -> Recession
2. Lockdown -> Labor supply -> Unemployment -> Recession

b. The front door path is: Lockdown -> Aggregate demand -> Recession

c. If we controlled for unemployment, it would likely weaken the causal estimate of lockdown on recession because unemployment is a mediator in the relationship between lockdown and recession. Controlling for unemployment would provide a more accurate estimate of the direct effect of lockdown on recession.

d. It is possible to measure each of the variables adequately as they can be observed and quantified. None of the variables need to be drawn as unobservable in the diagram.

e. One variable that may be relevant to identify the answer to the research question is government intervention. Government policies and actions during a pandemic-related lockdown can have significant effects on economic recession. This variable is missing from the diagram and should be considered in the identification strategy.