Consider the following population model for household consumption: cons = a + b1 * inc+ b2 * educ+ b3 * hhsize + u where cons is consumption, inc is income, educ is the education level of household head, hhsize is the size of a household. Suppose that the variable for consumption is measured with error, so conss = cons + e, where conss is the mismeaured variable, cons is the true variable, e is random, i.e., e is independent of all the regressors. What would we expect and why? A) OLS estimators for the coefficients will all be biased B) OLS estimators for the coefficients will all be unbiased C) ALL the standard errors will be bigger than they would be without the measurement error D) both B and C
Consider the following population model for household consumption:
cons = a + b1 * inc+ b2 * educ+ b3 * hhsize + u
where cons is consumption, inc is income, educ is the education level of household head, hhsize is the size of a household.
Suppose that the variable for consumption is measured with error, so conss = cons + e, where conss is the mismeaured variable, cons is the true variable, e is random, i.e., e is independent of all the regressors. What would we expect and why?
A) OLS estimators for the coefficients will all be biased
B) OLS estimators for the coefficients will all be unbiased
C) ALL the standard errors will be bigger than they would be without the measurement error
D) both B and C
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