Q. # 3 What are the consequences of the following model specification errors? Omitting an important...

Q. # 3

What are the consequences of the following model specification errors?

Omitting an important variable
Including an irrelevant variable
Measurement errors in the dependent variable
Measurement errors in the explanatory variables

Note: This is an econometrics question so please answer considering the subject.

Solutions

Expert Solution

Q3)

(a) Omitting an important variable will create biased estimates if the omitted variable is correlated with an independent variable. If not, all the independent variables will have unbiased estimates

(b) Including an irrelevant variable does not affect the biasedness of the estimates but does increase their variance and standard errors. Thus, increasing the probability of Type I error

(c) Measurement errors in the dependent variable will not lead t biased estimates. It will just increase the unexplained part of the regression and decrease R2

(d) Measurement errors in the explanatory variables will lead to the estimate of that variable becoming biased with the direction depending on the direction of measurement error.

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

1.What is specification error? 2.What are the criteria for model selection for an empirical analysis? 3....

1.What is specification error? 2.What are the criteria for model selection for an empirical analysis? 3. How will you estimate parameters in case of inclusion of irrelevant variables? 4. How would you detect that a model is overfitted? (P.S. - please answer every part)

Why are requirements and specification so important and what is the difference?

risk analysisc q What are the consequences of not having a MECE set of alternatives in...

risk analysisc q What are the consequences of not having a MECE set of alternatives in any risk assessment context? Explain.

Why is software engineering important? What benefits does it bring and what are the consequences of...

Why is software engineering important? What benefits does it bring and what are the consequences of not following an accepted methodology?

1. Why is it important for CPA to be independent? 2. What are 2 consequences of...

1. Why is it important for CPA to be independent? 2. What are 2 consequences of them not being independent?

Why is it important to ensure proper exchange of electronic data? What are the consequences if...

Why is it important to ensure proper exchange of electronic data? What are the consequences if not followed properly? Provide examples.

- Why are adjusting entries important? -What are the consequences of not booking adjusting entries at...

- Why are adjusting entries important? -What are the consequences of not booking adjusting entries at the end of the accounting period?

In a study for housing demand, the following regression model was estimated. The standard errors of...

In a study for housing demand, the following regression model was estimated. The standard errors of each coefficient are shown in the parentheses below. log Qt = 4.17 – 0.24 log Pt + 0.96 log Yt + 0.46 log MOR15t - 0.52 MOR30t + εt (0.03) (0.32) (0.23) (0.40) Adj R 2= 0.84, DW = 2.75, N=30. Where, Q = quantity of housing demanded P = price of unit of housing Y = family income MOR15 = 15-year mortgage rate...

from QFD, what factor use to determine most important design specification? Is it the absolute weight...

from QFD, what factor use to determine most important design specification? Is it the absolute weight or relative weight? How can I list the order of importance of the design specification using data from QFD?

1. What is strategy? Why is having a distinct strategy important? What are the potential consequences...

1. What is strategy? Why is having a distinct strategy important? What are the potential consequences for a company without a distinct strategy? Your answer will be short essays and should be three full paragraphs or longer.

Subjects