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Consider the linear probability model Yi = β0 + β1Xi + ui. Assume E(ui|Xi)=0. Which of...

Consider the linear probability model Yi = β0 + β1Xi + ui. Assume E(ui|Xi)=0. Which of the following statements are true?

Question 5 options:

The predicted value of the dependent variable can be greater than 1 or less than 0. Thus, the OLS estimator of β1 is biased.

The predicted value of the dependent variable will always be between 0 and 1. Thus, the OLS estimator of β1 is unbiased.

The predicted value of the dependent variable will always be between 0 and 1. Thus, the OLS estimator of β1 is biased.

The predicted value of the dependent variable can be greater than 1 or less than 0. This does not mean the OLS estimator of β1 is biased.
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Answer #1

The correct option is The predicted value of the dependent variable will always be between 0 and 1. Thus, the OLS estimator of β1 is unbiased.

Consider the linear probability model Yi = β0 + β1Xi + ui. Assume E(ui|Xi)=0. Which of the following statements are true? The predicted value of the dependent variable will always be between 0 and 1. Thus, the OLS estimator of β1 is unbiased.

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