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1. Estimate a simple linear regression Home-price = + ASOF + 2Yearbuit + 3Crime-

ID: 1104830 • Letter: 1

Question

1. Estimate a simple linear regression Home-price = + ASOF + 2Yearbuit + 3Crime-rate + u using a random sample of houses in CA. If the error u captures other amenities in the neighborhood, and you believe that crime rate is negatively correlated with amenities, but is unrelated with square feet (SQT) and in which year a home was built (Yearbuilt). Which of the following statement is true? a) Crime_ rate is exogenous. b) Yearbuilt is endogenous. c) OLS estimate of will be biased, but OLS estimates of Band will not be biased d) OLS estimates of all slopes will be biased

Explanation / Answer

option A) because Covariance of Crime_rate with other independent variables is zero.

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