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# EC355 (Econometrics)

## Instructor: Jean Eid

Assignment # 1
th
September 28 2016

## Question-1 Suppose we have the following model

yi = o + ui

Also suppose that Var ui = 10
(a) derive the OLS estimator for o
(b) derive the variance of the estimator
(c) Suppose that we have the following

13 13

9 13

8 13

8 12

9 10

8 10

9 11 10

(d) calculate o

## (e) calculate Var

(f) test the null that o = 10
Question-2 suppose that

y i = o +

k
X

j Xij + ui

j=1

## (b) what is the Var y|X

(c) let the estimated residuals

u
= yi o

k
X

j Xij

j=1

i. Show that u
=

1
N

N
X

u
i = 0

ii. Show that estimated covariance between the estimated residuals and any of the independent variables is 0. i.e. show tat

1
N

X
Xij Xj u
i u
= 0
1

## iii. show that y and x go through the regression line.

iv. Show that y = y

PAGE

N
N
N
2 X
2 X
X
yi y =
yi y +
u
2i
1

## Question-4 Suppose that log yi = o + 1 log xi + ui

(a) Carefully derive the meaning of 1
(b) derive the OLS estimator

(c) Derive the variance of the OLS estimator assuming that Var ui |X =

## Question-5 Suppose you have the following model

yi = o + 1 x1 + 2 x2 + 3 x3 + u
You are interested in estimating the sum of the parameters on x1 and x2 ; call this 1 = 1 + 2
(a) Show that 1 = 1 + 2 is an unbiassed estimator of 1

## (b) Find Var

1 in terms of Var 1 , Var 2 , and the Cor 1 , 2
Question-6 Suppose you have the following

yi = o + 1 xi + ui
(a) Suppose you run a regression

xi = o + i
and the you run

yi =
i + i
Prove that
= 1
Question-7 C1, page 110
Question-8 C2, page 110
Question-9 C3, page 111
Question-10 C8, page 112

End of Assignment # 1
Total pages: 2

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