The OLS residuals
A)can be calculated using the errors from the regression function.
B)can be calculated by subtracting the fitted values from the actual values.
C)are unknown since we do not know the population regression function.
D)should not be used in practice since they indicate that your regression does not run through all your observations.

Question

Quizplus · Accepted Answer

OLS residuals are the difference between the actual values and the predicted values (fitted values) of the dependent variable. Therefore, option B is correct. Option A is incorrect because errors are not the same as residuals - errors are the difference between the actual values of the dependent variable and the values predicted by the population regression equation, which is typically unknown in practice. Option C is incorrect because while we do not know the population regression function, we can estimate the sample regression function and use it to calculate residuals. Option D is incorrect because residuals are a necessary part of regression analysis and are used to assess the goodness of fit of the regression model.

The OLS Residuals