New SIDBI Grade A New Batch Starts on Nov 18

    Register

    Question

    What is the term used when explanatory variable is correlated with the error term?

    A Autocorrelation Correct Answer Incorrect Answer
    B Multicollinearity Correct Answer Incorrect Answer
    C Heteroscedasticity Correct Answer Incorrect Answer
    D Endogeneity Correct Answer Incorrect Answer

    Solution

    Endogeneity occurs when a predictor variable (x) in a regression model is correlated with the error term (e) in the model. This can occur under a variety of conditions, but two cases are especially common in inequality research: (1) when important variables are omitted from the model (called “omitted variable bias”) and (2) when the outcome variable is a predictor of x and not simply a response to x (called “simultaneity bias”)

    Practice Next