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Your Econometrics Textbook Stated That There Will Be Omitted Variable

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Essay

Your econometrics textbook stated that there will be omitted variable bias in the OLS estimator unless the included regressor, X, is uncorrelated with the omitted variable or the omitted variable is not a determinant of the dependent variable, Y. Give an intuitive explanation for these two conditions.


Definitions:

Total Liabilities

The sum of all monetary obligations a company owes to external parties, such as loans, accounts payable, and mortgages.

Owner's Equity

Represents the residual interest in the assets of a business after deducting liabilities, essentially the net worth belonging to the owners.

Total Assets

Represent the sum of all assets a company owns, including cash, inventory, property, and equipment, among others, showing the total value of what the company controls.

Period Of Time

A duration in which activities, processes, or conditions exist or take place.

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