OLS Coefficients Are Biased When There Is a Lagged Dependent

OLS coefficients are biased when there is a lagged dependent variable and fixed effects in the same model. Which of the following statements is most accurate about using OLS when there is a lagged dependent variable and fixed effects in the same model?

A) We should never use OLS in this situation.
B) Instrumental variables are easier to use OLS in this situation.
C) OLS can produce coefficient estimates that are biased, but still on average closer to the true values in this situation.
D) OLS performs worse in this situation when we have many observations for each unit.

Correct Answer:

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