An independent variable is endogenous if:
A) It is correlated with another independent variable in the model.
B) It is correlated with the error term.
C) It is not correlated with the error term.
D) If it is correlated with Y.

Question

Quizplus · Accepted Answer

An independent variable is endogenous if it is correlated with the error term. This means that the independent variable is affected by other variables in the model and cannot be considered as truly exogenous. Therefore, its coefficient estimates may be biased and inconsistent, and the results of the analysis may not be reliable.

An Independent Variable Is Endogenous If