A regression model suffers from functional form misspecification if _____.
A)a key variable is binary.
B)the dependent variable is binary.
C)an interaction term is omitted.
D)the coefficient of a key variable is zero.

Question

Quizplus · Accepted Answer

Functional form misspecification occurs when the functional relationship between the dependent variable and the independent variables is incorrectly specified in the model, such as omitting an interaction term or using the wrong functional form. Option A and B are related to different types of models (logistic regression or probit model) and not to functional form misspecification. Option D is unrelated to functional form misspecification.

A Regression Model Suffers from Functional Form Misspecification If _____