Which of the following assumptions is required for two stages least squares estimation with time series data but not required for two-stage least squares estimation with cross sectional data?
A)The conditional mean of the error term is zero.
B)The error term has constant conditional variance.
C)The model includes at least one dummy variable.
D)The error terms are not serially correlated.

Question

Quizplus · Accepted Answer

Two-stage least squares estimation with time series data requires that the error terms are not serially correlated, while this assumption is not required for two-stage least squares estimation with cross sectional data. The other assumptions listed (A, B, and C) are required for both types of regressions.

Which of the Following Assumptions Is Required for Two Stages