What can we conclude about the endogeneity of an explanatory variable if the OLS and 2SLS estimates are significantly different? Assume that the instrument used was exogenous.
A)The explanatory variable is not endogenous and therefore using 2SLS is ill-advised.
B)The explanatory variable is not endogenous and therefore OLS should not be used.
C)The explanatory variable is endogenous and therefore using 2SLS should be considered.
D)The explanatory variable is endogenous and therefore OLS should be used.

Question

Quizplus · Accepted Answer

If the OLS and 2SLS estimates are significantly different, it suggests that the explanatory variable is endogenous. Therefore, using 2SLS should be considered to address the endogeneity issue. The fact that the instrument used was exogenous helps to confirm that 2SLS is an appropriate method to use.

What Can We Conclude About the Endogeneity of an Explanatory