When you have an omitted variable problem,the assumption that E(ui Xi)= 0 is violated.This implies that
A)the sum of the residuals is no longer zero.
B)there is another estimator called weighted least squares,which is BLUE.
C)the sum of the residuals times any of the explanatory variables is no longer zero.
D)the OLS estimator is no longer consistent.

Question

When you have an omitted variable problem,the assumption that E(ui  Xi)= 0 is violated.This implies that
A)the sum of the residuals is no longer zero. 
B)there is another estimator called weighted least squares,which is BLUE. 
C)the sum of the residuals times any of the explanatory variables is no longer zero. 
D)the OLS estimator is no longer consistent.

Quizplus · Accepted Answer

When the assumption that E(ui | Xi) = 0 is violated due to an omitted variable, the OLS estimator is no longer consistent. This means that as the sample size increases, the estimated coefficients will not converge to the true population coefficients. Therefore, option D is the correct choice. The other options are not directly related to the issue of omitted variable bias.

When You Have an Omitted Variable Problem,the Assumption That E(ui