Question: Consider the multiple regression of y on K variablesXand an additional variable z. Prove that under the assumptions A1 through A6 of the classical regression

Consider the multiple regression of y on K variablesXand an additional variable z. Prove that under the assumptions A1 through A6 of the classical regression model, the true variance of the least squares estimator of the slopes on X is larger when z is included in the regression than when it is not. Does the same hold for the sample estimate of this covariance matrix? Why or why not? Assume that X and z are nonstochastic and that the coefficient on z is nonzero.

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We consider two regressions In the first y is regressed on K variables X The variance of the least squares estimator b XX Xy Varb oXX In the second y ... View full answer

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