Let W be the included exogenous variables in a regression function that also has endogenous regressors (X). The W variables can A)be control variables B)have the property E(u_i|W_i)= 0 C)make an instrument uncorrelated with u D)all of the above

Question

Quizplus · Accepted Answer

All the statements are true. W can be used as control variables to account for additional factors that may affect the dependent variable. They should also satisfy the condition E(u_i|W_i)= 0 to ensure that they do not have any direct effect on the endogenous variable. Finally, if W is used as an instrument for the endogenous variable X, it should be uncorrelated with the error term u. Therefore, D is the correct answer.

Let W Be the Included Exogenous Variables in a Regression