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If the zero conditional mean assumption does not hold but homoskedasticity is satisfied, the OLS estimator...

If the zero conditional mean assumption does not hold but homoskedasticity is satisfied, the OLS estimator will still be BLUE. A)True B) False

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Answer #1

False.

Reason; Zero conditional mean of the error term is one of the key conditions for the regression coefficients to be unbiased.It is necessary to investigate why OLS estimators and its assumptions gather so much focus.OLS estimators are BLUE (i.e. they are linear, unbiased and have the least variance among the class of all linear and unbiased estimators. But it seems baised beacuse homoskedasticity (the violation of homoscedasticity) is present when the size of the error term differs across values of an independent variable. The impact of violating the assumption of homoscedasticity is a matter of degree, increasing as heteroscedasticity increases.

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