When a set of variables with exact collinearity is included in an econometric model coefficient estimates are
A)undefined
B)unbiased
C)biased upward
D)biased,but the direction is unclear

Question

Quizplus · Accepted Answer

When a set of variables with exact collinearity is included in an econometric model, the coefficient estimates become undefined. This is because the collinear variables can explain the same variation in the dependent variable, making it impossible to isolate the individual effects of each variable. Therefore, the coefficients cannot be estimated or interpreted.

When a Set of Variables with Exact Collinearity Is Included