If the error term is correlated with any of the independent variables, the OLS estimators are:
A)biased and consistent.
B)unbiased and inconsistent.
C)biased and inconsistent.
D)unbiased and consistent.

Question

Quizplus · Accepted Answer

If the error term is correlated with any of the independent variables, the OLS estimators are biased and inconsistent. This is known as endogeneity, and it violates the assumptions of OLS. In this case, alternative estimation methods such as instrumental variable regression or two-stage least squares regression can be used to produce unbiased and consistent estimates.

If the Error Term Is Correlated with Any of the Independent