Estimation of equation (2) on its own using OLS would result in
A) Consistent and unbiased coefficient estimates
B) Consistent coefficient estimates which might be biased in small samples
C) Inconsistent but unbiased coefficient estimates
D) Coefficient estimates that are neither unbiased nor consistent.

Question

Quizplus · Accepted Answer

Estimating an equation using Ordinary Least Squares (OLS) without considering potential omitted variable bias, measurement error, simultaneity, or any other issues that violate the OLS assumptions can lead to coefficient estimates that are neither unbiased nor consistent. This is because the estimates may be systematically off from the true parameter values (biased) and may not converge to the true values as the sample size increases (inconsistent).

Estimation of Equation (2) on Its Own Using OLS Would