Question

Exercise 9.17 You have two regressors xı and x2, and estimate a regression with all quadratic terms Yi = a + B1X1i + B2X2i + B3xį i + B4xži + B5X1iX2i + ei One of your advisors asks: Can we exclude the variable X2i from this regression? How do you translate this question into a statistical test? When answering these questions, be spe- cific, not general. (a) What is the relevant null and alternative hypotheses? (b) What is an appropriate test statistic? Be specific. (c) What is the appropriate asymptotic distribution for the statistic? Be specific. (d) What is the rule for acceptance/rejection of the null hypothesis?

Answer 1

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