6-8 Simultaneous Equations bias But. if the equation is part of a system, then E(Xu)#0, in general Conclusion: Application of ols to structural equations which are part of a simultaneous system will lead to biased coefficient estimates Is the ols estimator still consistent even though it is biased? No-In fact the estimator is inconsistent as well Hence it would not be possible to estimate equations (4) and (5)validly using ols. C Chris brooks2002,陈磊204© Chris Brooks 2002, 陈磊 2004 6-8 • But .... if the equation is part of a system, then E(Xu)  0, in general. • Conclusion: Application of OLS to structural equations which are part of a simultaneous system will lead to biased coefficient estimates. • Is the OLS estimator still consistent, even though it is biased? • No - In fact the estimator is inconsistent as well. • Hence it would not be possible to estimate equations (4) and (5) validly using OLS. Simultaneous Equations Bias