When you have an omitted variable problem, the assumption that E(u_i X_i)= 0 is violated. This implies that A)the sum of the residuals is no longer zero. B)there is another estimator called weighted least squares, which is BLUE. C)the sum of the residuals times any of the explanatory variables is no longer zero. D)the OLS estimator is no longer consistent.

Question

Quizplus · Accepted Answer

The violation of the assumption that the omitted variable is uncorrelated with the included explanatory variables leads to biased and inconsistent OLS estimators. Therefore, the OLS estimator is no longer consistent in the presence of an omitted variable problem.

When You Have an Omitted Variable Problem, the Assumption That