You are presented with the following time series model: Y = X3 +u, where Y is...
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You are presented with the following time series model: Y = X3 +u, where Y is a n x 1 vector, u is is a n x 1 vector, X is a nx q matrix and 3 is a q x 1 column vector. (a) What assumptions do we need to make about the error vector, u in order for us to be sure that the Ordinary Least Squares estimator of 3 is BLUE? [8 MARKS] (b) What does it mean for the above model if we know that one of the variables in our model is endogenous? [6 MARKS] (c) Explain when, and how, we might be able to use an Instrumental Variable to over- come the problems caused by the inclusion of an endogenous variable in the model presented above. [11 MARKS] You are presented with the following time series model: Y = X3 +u, where Y is a n x 1 vector, u is is a n x 1 vector, X is a nx q matrix and 3 is a q x 1 column vector. (a) What assumptions do we need to make about the error vector, u in order for us to be sure that the Ordinary Least Squares estimator of 3 is BLUE? [8 MARKS] (b) What does it mean for the above model if we know that one of the variables in our model is endogenous? [6 MARKS] (c) Explain when, and how, we might be able to use an Instrumental Variable to over- come the problems caused by the inclusion of an endogenous variable in the model presented above. [11 MARKS]
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a In order for the Ordinary Least Squares estimator of to be BLUE Best Linear Unbiased Estimator we ... View the full answer
Related Book For
Introduction to Finance Markets Investments and Financial Management
ISBN: 978-1118492673
15th edition
Authors: Melicher Ronald, Norton Edgar
Posted Date:
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