If an explanatory variable is strictly exogenous it implies that:
A)changes in the lag of the variable does not affect future values of the dependent variable.
B)the variable is correlated with the error term in all future time periods.
C)the variable cannot react to what has happened to the dependent variable in the past.
D)the conditional mean of the error term given the variable is zero.

Question

Quizplus · Accepted Answer

Strict exogeneity means that the explanatory variable is not affected by what has happened to the dependent variable in the past, so option C is correct. Option A describes weak exogeneity, not strict exogeneity. Option B describes endogeneity, not exogeneity. Option D describes the assumption of zero conditional mean, which is a separate assumption in econometric modeling.

If an Explanatory Variable Is Strictly Exogenous It Implies That