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A omitting a constant term b including in the

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Unformatted text preview: sample provides a smaller standard error for the estimate of β and therefore a larger t statistic. 3. For a linear regression model Y = α + β X + u , where X and Y are mean zero, in which of the following cases OLS estimators will be biased? a) Omitting a constant term. b) Including in the regression only X while the true model is Y = α + β1 X + β 2 X 2 + u. c) In the sample, some data on X are missing randomly. d) None of the above. 1 Answer: B If the true model is Y = α + β1 X + β 2 X 2 + u , including only X in the model means you are estimating the wrong model. OLS estimators tend to be biased. 4. Suppose you have the following estimated equation, log soda = 0.8 − 0.07 log price, where soda refers to weekly soda consumption per capita an...
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