# Regression Model, Omitted Bias and F-Stat

The following regression model represents the demand for peanut butter:

log qt = B1 + B2 logpt + B3log rt + B4logmt + ut

where qt is the quantity of peanut butter consumed at time t; pt is the

price of peanut butter; rt is the price of jelly; and mt is income per

capita. Suppose an analyst estimates the following model:

log qt = B1 + B2 logpt + B3logmt + et

we expect B2 < 0 (law of demand) and B4 > 0 (peanut butter is a

normal good). What is the sign of omitted variable bias of B2 if

(a) B3 < 0 (peanut butter and jelly are complements) and pt and rt

are positively correlated.

(b) B3 > 0 (peanut butter and jelly are substitutes) and pt and rt are

positively correlated.

(c) B3 < 0 (peanut butter and jelly are complements) and pt and rt

are negatively correlated.

2. Test the null hypothesis that all coefficients except the intercept

equal to 0.

lwage = 1 + 2educ + 3married + 4exper + 5exper2 + et

storage display value

variable name type format label variable label

-------------------------------------------------------------------------------

lwage float %9.0g log(wage)

id int %9.0g person identifier

exper byte %9.0g age - educ - 6

expersq int %9.0g exper^2

married byte %9.0g =1 if married, 1976

IQ int %9.0g IQ score

KWW byte %9.0g knowledge world of work score

motheduc byte %9.0g mother's schooling

fatheduc byte %9.0g father's schooling

educ byte %9.0g years of schooling, 1976

nearc4 byte %9.0g =1 if near 4 yr college, 1966

nearc2 byte %9.0g =1 if near 2 yr college, 1966

weight float %9.0g NLS sampling weight, 1976

Source | SS df MS Number of obs = 3003

-------------+------------------------------ F( 4, 2998) = 212.57

Model | 130.571897 4 32.6429744 Prob > F =

Residual | 460.389254 2998 .153565462 R-squared =

-------------+------------------------------ Adj R-squared = 0.2199

Total | 590.961151 3002 .196855813 Root MSE = .39187

------------------------------------------------------------------------------

lwage | Coef. Std. Err. t P>|t| [95% Conf. Interval]

-------------+----------------------------------------------------------------

educ | .0898329 .0035461 25.33 0.000 .0828799 .0967859

married | -.0350949 .0035839 -9.79 0.000 -.042122 -.0280678

exper | .077507 .0070715 10.96 0.000 .0636416 .0913724

expersq | -.0021298 .0003347 -6.36 0.000 -.0027861 -.0014735

_cons | 4.667204 .0706975 66.02 0.000 4.528584 4.805825

https://brainmass.com/economics/regression/regression-model-omitted-bias-f-stat-61555

#### Solution Summary

Omitted bias is examined.