Which of the following assumptions is needed for the plug-in solution to the omitted variables problem to provide consistent estimators?
A)The error term in the regression model exhibits heteroskedasticity.
B)The error term in the regression model is uncorrelated with all the independent variables.
C)The proxy variable is uncorrelated with the dependent variable.
D)The proxy variable has zero conditional mean.

Question

Quizplus · Accepted Answer

The plug-in solution to the omitted variables problem requires that the error term in the regression model be uncorrelated with all the independent variables to ensure that the estimators are consistent. This condition is necessary to avoid omitted variable bias, which occurs when an omitted variable is correlated with both the independent variables and the dependent variable.

Which of the Following Assumptions Is Needed for the Plug-In