PS3 Econ 140

PS3 Econ 140 - Patrick Chuang 20262244 Michael Ishimaru...

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Patrick Chuang 20262244 Michael Ishimaru 20244259 Jisu Youm 20161629 Problem Set 3 1. False: An increase in the R 2 does not mean that adding a variable actually improves the fit of the model. The decision to add a regressor depends on if variable allows you to better show the causal effect of interest 2. False: This is an example of imperfect multicollinearity because the correlation coefficient between two regressors, X 2 and X 3, is equal to -0.89. If it was perfect multicollinearity the correlation coefficient would equal 1. Imperfect multicollinearity causes problems because it gives a high standard error of the coefficients. Therefore, making it easier to fail to reject the null hypothesis. If you drop X3 it would increase t-stat because lower SE. 3. False: When the joint null hypothesis has two restrictions, the F-stat combines the two t- stats. You don’t have to perform individual t-tests on them because the F-stat formula combines the values into one equation. To test the restrictions one at a time you cannot just t- test each individual regressor. Multi-part 1
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PS3 Econ 140 - Patrick Chuang 20262244 Michael Ishimaru...

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