# CLRM – Assumption 3: Explanatory Variables must be exogenous

Assumption 3, exogeneity of explanatory variables requires that the explanatory variables $X$ in the model do not explain variation in the error terms, formally we express assumption 3 as Continue reading CLRM – Assumption 3: Explanatory Variables must be exogenous

# CLRM – Assumption 2: Full Rank of Matrix X

Assumption 2 requires the matrix of explanatory variables $X$ to have full rank. This means that in case matrix $X$ is a $N \times K$ matrix the rank of matrix $X$ is $K$. Namely, $Rank(X) = K$