Which of the following is/are the consequence(s) of including an irrelevant variable in a multiple linear regression model? (i) The variances of the OLS coefficients may be larger; (ii) The OLS coefficients will be biased unless the irrelevant variable is orthogonal to the other included variables; (iii) The variances of the OLS coefficients will be unaffected.
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Misspecification and measurement error has come up 11 times in 4 exams since 2011.
This question is on Irrelevant variables and functional-form misspecification, part of Misspecification and measurement error in Econometrics.
The cost of including a variable that does not belong, and of using the wrong functional form.
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Question from the DSE 2018 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.