Describe the Consequences of Estimating an Equation by OLS in the Presence

question 24

Essay

Describe the consequences of estimating an equation by OLS in the presence of an endogenous regressor. How can you overcome these obstacles? Present an alternative estimator and state its properties.

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Definitions:

Lower-of-Cost-or-Market

An accounting principle that mandates inventory be recorded at the lower between its historical cost and current market value.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.

Inventory Quantity

The amount of merchandise, raw materials, work-in-progress, and finished goods that a company holds at any given point in time.

Days' Sales

A financial metric that calculates the average time it takes for a company to convert its inventory into sales.