(Requires Appendix Material) When the Fifth Assumption in the Fixed $\left( \operatorname { cov } \left( u _ { i t } , u _ { i s } \mid X _ { i i } , X _ { i s } \right) = 0 \text { for } t \neq s \right)$

question 29

Multiple Choice

(Requires Appendix material) When the fifth assumption in the Fixed Effects regression $\left( \operatorname { cov } \left( u _ { i t } , u _ { i s } \mid X _ { i i } , X _ { i s } \right) = 0 \text { for } t \neq s \right)$ is violated, then

• A) using heteroskedastic-robust standard errors is not sufficient for correct statistical inference when using OLS.
• B) the OLS estimator does not exist.
• C) you can use the simple homoskedasticity-only standard errors calculated in your regression package.
• D) you cannot use fixed time effects in your estimation.

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Definitions:

Lenders

Individuals, organizations, or institutions that provide funds to borrowers under the agreement that the funds will be repaid with interest at a later date.

Fixed Incomes

Financial incomes that are set at a particular figure and do not fluctuate in the short term, such as bonds or pensions.

High Inflation

A period during which prices for goods and services rise excessively, eroding purchasing power.

Purchasing Power

The ability of an individual or group to buy goods and services, often considered in terms of the amount of goods and services that one unit of currency can buy.