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The Probability Limit of the OLS Estimator in the Case

question 34

Essay

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


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