Which of the following is true?
A)A functional form misspecification can occur if the level of a variable is used when the logarithm is more appropriate.
B)A functional form misspecification occurs only if a key variable is uncorrelated with the error term.
C)A functional form misspecification does not lead to biasedness in the ordinary least squares estimators.
D)A functional form misspecification does not lead to inconsistency in the ordinary least squares estimators.

Question

Quizplus · Accepted Answer

A functional form misspecification can lead to biasedness in the ordinary least squares estimators. Using the wrong functional form, such as using the level of a variable instead of its logarithm when a logarithmic transformation is appropriate, can lead to biased coefficients and incorrect statistical inference.

Which of the Following Is True