First-differenced estimation in a panel data analysis is subject to serious biases if _____.
A)key explanatory variables vary significantly over time
B)the explanatory variables do not change by the same unit in each time period
C)one or more of the explanatory variables are measured incorrectly
D)the regression model exhibits homoscedasticity

Question

Quizplus · Accepted Answer

First-differenced estimation can be biased if one or more of the explanatory variables are measured incorrectly. This is because the differencing process amplifies any measurement errors in the variables, leading to biased estimates.

First-Differenced Estimation in a Panel Data Analysis Is Subject to Serious