Exogeneity of an independent variable occurs when
A)an independent variable is correlated with the dependent variable.
B)the dependent variable is correlated with the error term.
C)an independent variable is uncorrelated with the error term.
D)the dependent variable is correlated with an independent variable.

Question

Quizplus · Accepted Answer

Exogeneity of an independent variable occurs when it is uncorrelated with the error term in the regression equation. This means that changes in the independent variable should not be causing changes in the error term or causing changes in the dependent variable through the error term. Choice A and D refer to endogeneity, which is the opposite of exogeneity. Choice B refers to autocorrelation, which is not related to exogeneity.

Exogeneity of an Independent Variable Occurs When