A proxy variable _____.
A)increases the error variance of a regression model
B)cannot contain binary information
C)is used when data on a key independent variable is unavailable
D)is detected by running the Davidson-MacKinnon test

Question

Quizplus · Accepted Answer

A proxy variable is used when data on a key independent variable is unavailable. It is used as a substitute for the key variable and can help in making predictions or inferences. Proxy variables do not necessarily increase the error variance of a regression model, and binary information can be included in proxy variables. The Davidson-MacKinnon test is used to test for endogeneity, which is different from proxy variables.

A Proxy Variable _____