Question
In the classical linear regression model, X iand U iare assumed to be:
The correct answer is
not correlated
The exogeneity assumption is \(E(U_i\mid X)=0\), which implies \(\operatorname{Cov}(X_i,U_i)=0\) when the required moments exist. Thus the regressor and disturbance are uncorrelated; correlation would indicate endogeneity.
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