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Suppose that you wish to estimate the magnitude of the relationship between the rate of return...

Suppose that you wish to estimate the magnitude of the relationship between the rate of return on the 30 Dow Jones industrials and two economic factors, the rate of inflation and the rate of growth of real GNP. You postulate the following relationship:

yt =α+ß1x1t +ß2x2t +εi

where yt = the rate of return on the Dow Jones in period t x1t = the rate of inflation in period t
x2t = the rate of growth in real GNP in period t

What are the statistical consequences of estimating the relationship between these variables using the above regression equation when the true regression relationship is given by the following equation?

yt =α+ß1x1t +ß2x2t +ß3x3t +εi

Math   Statistics-And-Probability   
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