Let W be the included exogenous variables in a regression function that also has endogenous regressors (X).The W variables can
A)be control variables
B)have the property E(ui|Wi)= 0
C)make an instrument uncorrelated with u
D)all of the above

Question

Quizplus · Accepted Answer

The W variables can serve as control variables to help control for omitted variable bias. Additionally, if the W variables have the property E(ui|Wi)= 0, then they can also be used as instrumental variables to correct for endogeneity in the X variable(s). Therefore, D is the best choice as it encompasses both possible uses for the W variables in the regression function.

Let W Be the Included Exogenous Variables in a Regression