LOS j: Discuss the limitations of regression analysis

1．itations of regression analysis include all of the following EXCEPT:

A)   regression results do not indicate anything about economic significance.

B)   relationships change over time.

C)   outliers may affect the estimated regression line.

D)   parameter instability.

2．gression analysis has a number of assumptions. Violations of these assumptions include which of the following?

A)   A zero mean of the residuals.

B)   Independent variables uncorrelated with the residuals.

C)   Independent variables that are not normally distributed.

D)   Residuals that are not normally distributed.

LOS j: Discuss the limitations of regression analysis

1．itations of regression analysis include all of the following EXCEPT:

A)   regression results do not indicate anything about economic significance.

B)   relationships change over time.

C)   outliers may affect the estimated regression line.

D)   parameter instability.

The correct answer was A)

The estimated coefficients tell us something about economic significance – they tell us the expected or average change in the dependent variable for a given change in the independent variable.

2．gression analysis has a number of assumptions. Violations of these assumptions include which of the following?

A)   A zero mean of the residuals.

B)   Independent variables uncorrelated with the residuals.

C)   Independent variables that are not normally distributed.

D)   Residuals that are not normally distributed.

The correct answer was D)

The assumptions include a normally distributed residual with a constant variance and a mean of zero.