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 not be correlated with the error terms in other equation
Choose the correct option:
1
(a) and (d) only
2
(a) and (c) only
3
(a), (b) and (c) only
4
(a), (b), (c) and (d)