Econometrics: Classical Assumption 3 – There is no correlation between any of the explanatory variables and the error term.

There cannot be any correlation between the explanatory variables present within a given equation and the error term. If it were the case that the error term and the explanatory variables were in fact correlated, what you would find happening is that some of the variation that occurs in the dependent or Y variable will …

Econometrics: Classical Assumption 3 – There is no correlation between any of the explanatory variables and the error term. Read More »