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Questions › DSE › DSE 2012 › Q33
2 marksEconometrics › Linear regression and OLS › Interpreting slopes, intercepts and rescalingHardabout 4 min

DSE 2012 Question 33: Linear regression and OLS

Consider the regressions Yi∗=β^1∗+β^2∗Xi∗+u^i∗Y_{i}^{*}=\hat{\beta}_{1}^{*}+\hat{\beta}_{2}^{*}X_{i}^{*}+\hat{u}_{i}^{*}Yi∗​=β^​1∗​+β^​2∗​Xi∗​+u^i∗​, and Yi=β^1+β^2Xi+u^iY_{i}=\hat{\beta}_{1}+\hat{\beta}_{2}X_{i}+\hat{u}_{i}Yi​=β^​1​+β^​2​Xi​+u^i​, where Yi∗=w1YiY_{i}^{*}=w_{1}Y_{i}Yi∗​=w1​Yi​ and Xi∗=w2XiX_{i}^{*}=w_{2}X_{i}Xi∗​=w2​Xi​; w1,w2w_{1},w_{2}w1​,w2​ are constants. Is it true that

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Plain-text version

Consider the regressions Yᵢ*=β̂₁*+β̂₂*Xᵢ*+ûᵢ*, and Yᵢ=β̂₁+β̂₂Xᵢ+ûᵢ, where Yᵢ*=w₁Yᵢ and Xᵢ*=w₂Xᵢ; w₁,w₂ are constants. Is it true that (A) β̂₁*=w₂β̂₁ (B) β̂₂*=w₂/w₁β̂₂ (C) Var(β̂₂*)=(w₁/w₂)²Var(β̂₂) (D) r_(xy)²≠ r_(x*y*)², where r denotes correlation coefficient

Also written as: Consider the regressions Y_i*=beta_hat_1*+beta_hat_2*X_i*+u_hat_i*, and Y_i=beta_hat_1+beta_hat_2X_i+u_hat_i, where Y_i*=w_1Y_i and X_i*=w_2X_i; w_1,w_2 are constants. Is it true that

Linear regression and OLS has come up 74 times in 7 exams since 2008.

What this question tests

This question is on Interpreting slopes, intercepts and rescaling, part of Linear regression and OLS in Econometrics.

Reading a fitted coefficient, and what changes when variables are rescaled.

TestStop has 12 past-paper questions on this subtopic.

Practise Linear regression and OLSMore on Interpreting slopes, intercepts and rescaling

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