Question: Suppose the true regression model is given by (8-2). The result in (8-4) shows that if either P1.2 is nonzero or 2 is nonzero, then

Suppose the true regression model is given by (8-2). The result in (8-4) shows that if either P1.2 is nonzero or β2 is nonzero, then regression of y on X1 alone produces a biased and inconsistent estimator of β1. Suppose the objective is to forecast y, not to estimate the parameters. Consider regression of y on X1 alone to estimate β1 with b1 (which is biased). Is the forecast of y computed using X1b1 also biased? Assume that E[X2 | X1] is a linear function of X1. Discuss your findings generally.What are the implications for prediction when variables are omitted from a regression?

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The result cited is Eb P22 where P2 XX X X so the coefficient estimator is biased If the condition... View full answer

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