Question
Statistics, Econometrics & Mathematical Economics Question on Regression Analysis
Consider a simple pooled regression model: yit = β0 + β1xit + vit where vit = μi + ∈it and Cov(xit, μi) ≠ 0. Here, μi captures the unknown individual specific effects and it is the idiosyncratic error uncorrelated with both xit and μi. If the parameters of this model are estimated using the ordinary least squares (OLS) method, then the estimated slope coefficient will be
A
biased
B
inconsistent
C
unbiased but consistent
D
unbiased but efficient
Answer
biased
Explanation
Solution
The correct option is (A) : biased and (B) : inconsistent.