Consider the regression model, Yi = 1Xi + 2Wi + ui, where for simplicity the intercept is
Question:
a. Whether or not Wi and ui are correlated,
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b. If Wi and ui are correlated, then β2 is inconsistent.
c. Let β1r be the OLS estimator from the regression of Y on X (the restricted regression that excludes W). Provide conditions under which β1 has a smaller asymptotic variance than β1r, allowing for the possibility that Wi and ui are correlated.
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a We write the regression model Y i 1 X i 2 W i u i in the matrix form as Y X W U with The ...View the full answer
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Related Book For 
Introduction to Econometrics
ISBN: 978-0133595420
3rd edition
Authors: James H. Stock, Mark W. Watson
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