State if the following is True or false and provide a brief explanation for your answer. Consider Population model Y = Bo + B1X1 + B2X2 + B3X3 + µ. Now consider the following statements a to c. Assumption MLR 1 – 4 is satisfied if and only if: k. One problem with the use of a lagged dependent variable as an explanatory variable is that it always gives rise to autocorrelation. 1. The existence of a exact, linear relationship among some or all explanatory variables of a regression model is called multicollinearity

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State if the following is True or false and provide a brief explanation for
your answer.
Consider Population model Y = Bo+ B1X1+ B2X2+ B3X3 + µ. Now consider the
following statements a to c. Assumption MLR 1 – 4 is satisfied if and only if:
k. One problem with the use of a lagged dependent variable as an explanatory variable is
that it always gives rise to autocorrelation.
1. The existence of a exact, linear relationship among some or all explanatory variables of a
regression model is called multicollinearity.
m. In multicollinearity, the variances and the standard errors (Se) of the regression
coefficient estimates will increase. This means lower t-statistics. The overall fit of the
regression equation will be largely unaffected by multicollinearity. This also mean that
forecasting and prediction will be largely unaffected.
n. Regression coefficients will be sensitive to specifications. Regression coefficients can
change substantially when variables are added or dropped.
o. Sometimes you can reduce multicollinearity by re-specifying the model, for instance,
create a combination of multicollinear variables represents transforming the specification
error.
p. Inclusion of irrelevant variable(s) and error of measurement represents specification
errors in a regression model.
Transcribed Image Text:State if the following is True or false and provide a brief explanation for your answer. Consider Population model Y = Bo+ B1X1+ B2X2+ B3X3 + µ. Now consider the following statements a to c. Assumption MLR 1 – 4 is satisfied if and only if: k. One problem with the use of a lagged dependent variable as an explanatory variable is that it always gives rise to autocorrelation. 1. The existence of a exact, linear relationship among some or all explanatory variables of a regression model is called multicollinearity. m. In multicollinearity, the variances and the standard errors (Se) of the regression coefficient estimates will increase. This means lower t-statistics. The overall fit of the regression equation will be largely unaffected by multicollinearity. This also mean that forecasting and prediction will be largely unaffected. n. Regression coefficients will be sensitive to specifications. Regression coefficients can change substantially when variables are added or dropped. o. Sometimes you can reduce multicollinearity by re-specifying the model, for instance, create a combination of multicollinear variables represents transforming the specification error. p. Inclusion of irrelevant variable(s) and error of measurement represents specification errors in a regression model.
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