Solved – Why do the residuals have to be uncorrelated with the predictor variable

correlationregressionresiduals

In linear regression, the residuals have to be uncorrelated with the predictor variable. Is it true, and if it, why is that?

Best Answer

The true error term has to be uncorrelated with the regressors, in order for the estimator to have certain desirable properties.

The residuals in OLS estimation are by design orthogonal to the regressors, $\mathbf X'\mathbf {\hat u} = 0$, and since, also by design, they have zero mean, they are also, by design, uncorrelated with the regressors.

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