Endogeneity of an independent variable presents a challenge because
A)two-stage least squares is biased and inconsistent.
B)OLS does not properly weight the data for the undue influence of outliers.
C)OLS does not account for the autoregressive structure of the error term.
D)OLS is unable to isolate the true marginal effect of endogenous independent variable.

Question

Quizplus · Accepted Answer

Endogeneity of an independent variable means that it is correlated with the error term, which violates the assumption of exogeneity. OLS is unable to isolate the true marginal effect of endogenous independent variable, meaning that the estimates of the coefficients are biased and inconsistent. Therefore, the best choice is D.

Endogeneity of an Independent Variable Presents a Challenge Because