Endogeneity of an independent variable presents a challenge because
A)OLS estimates are biased and inconsistent.
B)it causes the regression to be perfectly collinear.
C)it leads to heteroskedasticity.
D)OLS estimates remained unbiased but they are no longer BLUE.

Question

Quizplus · Accepted Answer

Endogeneity of an independent variable biases OLS estimates and makes them inconsistent. This is because the endogenous variable is correlated with the error term, violating the assumption of exogeneity. As a result, OLS no longer provides unbiased estimates of the regression parameters.

Endogeneity of an Independent Variable Presents a Challenge Because