6.6 Table 6.3 contains output for the two models X = B: + Bir + B3wy + c, y = B. + B23, + e.

obtained using IV := 35 observations. RESET tests applied to the second model yield F-values of 17.98 (for }; ) and 8.72 (for ), and },'). The correlation between x and wis rn. = 0.975. Discuss the following questions:

(a) Should w; be included in the model?

(b) What can you say about omitted-variable bias?

(c) What can you say about the existence of collinearity and its possible effect?

Table 6.3 Output for Exercise 6.6 Variable Coefficient Std. Error 1-value Coefficient Std. Error 1-value C 3.6356 2.763 1.316 -5.8382 2.000 -2.919 X -0.99845 1.235 -0.8085 4.1072 0.3383 12.14 W 0.49785 0.1174 4.240