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Which of the following statements are true concerning a triangular or recursive system ?
(a) The parameters can be validly estimated using separate applications of OLS to each equation
(b) The independent variables may be correlated with the error terms in other equation
(c) An application of two-stage least squares would lead to unbiased but inefficient parameter estimation
(d) The independent variables may be correlated with the error terms in the equation in which they appear as independent variables
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Eduncle Best Answer
Features of triangular or recursive system :
(i) The Parameters can be validly estimated using separate applications of OLS to each equation.
(ii) The independent variables may be correlated with the error terms in other equation.
(iii) An application of two-stage least squares would lead to unbiased but efficient parameter estimation.