(Requires Appendix material)When the fifth assumption in the Fixed Effects regression (cov (u_it, u_is | X_it, X_is)= 0 for t ? s)is violated, then A)using heteroskedastic-robust standard errors is not sufficient for correct statistical inference when using OLS. B)the OLS estimator does not exist. C)you can use the simple homoskedasticity-only standard errors calculated in your regression package. D)you cannot use fixed time effects in your estimation.

Question

Quizplus · Accepted Answer

When the fifth assumption in the Fixed Effects regression, which concerns the independence of the error terms across time, is violated, it implies that there is serial correlation in the error terms. This violation means that using heteroskedastic-robust standard errors alone is not sufficient for correct statistical inference in OLS, as these do not correct for serial correlation.

(Requires Appendix Material)When the Fifth Assumption in the Fixed Effects