Consider the model log(y) = +An + u. We know zi is an endogenous variable. Which

Question

Consider the model log(y) = +An + u. We know zi is an endogenous variable. Which of the following is true? O Answer The OLS estimate of 1 is unbiased, however the standard error is biased O Answer We can obtain an unbiased estimate of if we find a proxy variable z for ri where is correlated with zi and uncorrelated with u O Answer We can obtain an unbiased estimate of Bi if we find a proxy variable for r2 where z is correlated with z1 and uncorrelated with u Answer We can obtain an unbiased estimate of B, if we find an instrumental variable s for ri where is correlated with zi and uncorrelated with

Explanation / Answer

answer is option d) because the best way to encounter the problem of endogenity is to use the instrument variable method approach using first stage least square regression and second stage least squre regression.

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