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Questions › DSE › DSE 2021 › Q43
4 marks, −1Econometrics › Linear regression and OLS › The regression model and the OLS estimatorHardabout 3 min

DSE 2021 Question 43: Linear regression and OLS

You have three variables Y,X1,X2Y, X_1, X_2Y,X1​,X2​. First you regress (OLS) YYY on X1X_1X1​ and X2X_2X2​ to get the regression coefficients corresponding to X1X_1X1​ and X2X_2X2​ as b1b_1b1​ and b2b_2b2​ respectively. Then you also regress (OLS) YYY on X1X_1X1​ and X1+X2X_1 + X_2X1​+X2​ to get the coefficients corresponding to X1X_1X1​ and X1+X2X_1 + X_2X1​+X2​ as c1c_1c1​ and c2c_2c2​ respectively. Which of the following statements is correct?

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You have three variables Y, X₁, X₂. First you regress (OLS) Y on X₁ and X₂ to get the regression coefficients corresponding to X₁ and X₂ as b₁ and b₂ respectively. Then you also regress (OLS) Y on X₁ and X₁ + X₂ to get the coefficients corresponding to X₁ and X₁ + X₂ as c₁ and c₂ respectively. Which of the following statements is correct? (A) There is no need to run the second regression; c₁ and c₂ can be derived from b₁ and b₂ directly (B) It is incorrect to run the second regression; it will not give an unbiased estimator (C) It is better to run the first regression; the Sum of Squared Residuals in the first regression will be smaller than that of the second regression (D) It is incorrect to run the second regression, the error term will be correlated with independent variables

Also written as: You have three variables Y, X_1, X_2. First you regress (OLS) Y on X_1 and X_2 to get the regression coefficients corresponding to X_1 and X_2 as b_1 and b_2 respectively. Then you also regress (OLS) Y on X_1 and X_1 + X_2 to get the coefficients corresponding to X_1 and X_1 + X_2 as c_1 and c_2 respectively. Which of the following statements is correct?

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

What this question tests

This question is on The regression model and the OLS estimator, part of Linear regression and OLS in Econometrics.

What a linear regression model is and how ordinary least squares picks the fitted line.

TestStop has 16 past-paper questions on this subtopic.

Practise Linear regression and OLSMore on The regression model and the OLS estimator

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