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The Probability Limit of the OLS Estimator in the Case β^1pβ1+ρXuσuσX\hat { \beta } _ { 1 } \stackrel { p } { \rightarrow } \beta _ { 1 } + \rho _ { X u } \frac { \sigma _ { u } } { \sigma _ { X } }

question 40

Essay

The probability limit of the OLS estimator in the case of omitted variables is given in
your text by the following formula: β^1pβ1+ρXuσuσX\hat { \beta } _ { 1 } \stackrel { p } { \rightarrow } \beta _ { 1 } + \rho _ { X u } \frac { \sigma _ { u } } { \sigma _ { X } } Give an intuitive explanation for two conditions under which the bias will be small.


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