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When Using an Auxiliary Equation to Help Us Think Though δ\delta

Question 8

Multiple Choice

When using an auxiliary equation to help us think though an omitted variable bias question, if δ\delta 1 is equal to zero then:


A) We have an OMV bias problem and therefore need to include the variable (if we can) .
B) The omitted variable is not correlated with the main independent variable of interest, and we therefore do not have an omitted variable bias problem by omitting that variable.
C) We don't care about δ\delta 1 in the auxiliary equation and instead need to focus on the size of the error term in the auxiliary equation.
D) Need more information to answer this question

Correct Answer:

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