Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 16

Suppose we want to estimate the effects of alcohol consumption (alcohol) on college grade point average (colGPA). In addition to collecting information on grade point averages and alcohol usage, we also obtain attendance information (say, percentage of lectures attended, called attend). A standardized test score (say, SAT) and high school GPA (hsGPA) are also available.

(i) Should we include attend along with alcohol as explanatory variables in a multiple regression model? (Think about how you would interpret ????alcohol.)

(ii) Should SAT and hsGPA be included as explanatory variables? Explain.

Step 1 of 2

(i)

When the effect of the alcohol consumption is estimated on the college point average, one should not include both andas the explanatory variables in the multiple regression model. This is because, there is high degree of (negative) correlation betweenand

Including both would lead to the problem of multi-collinearity