Suppose you have the following panel regression equation: Yi,t = a + pYi,t-1 + i,t where...

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Suppose you have the following panel regression equation: Yi,t = a + pYi,t-1 + i,t where Ei,t = Uit + Oui,t-1 and uit is white noise (uit is not correlated over time or across individuals). Prove that estimating Equation (3) using ordinary least squares will result in an in- consistent estimate of p. Prove that estimating Equation (3) using instrumental variables with Yi,t-2 as an in- strument will result in an consistent estimate of p. Activate Window Go to Settings to activ Suppose you have the following panel regression equation: Yi,t = a + pYi,t-1 + i,t where Ei,t = Uit + Oui,t-1 and uit is white noise (uit is not correlated over time or across individuals). Prove that estimating Equation (3) using ordinary least squares will result in an in- consistent estimate of p. Prove that estimating Equation (3) using instrumental variables with Yi,t-2 as an in- strument will result in an consistent estimate of p. Activate Window Go to Settings to activ

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To prove that estimating Equation 3 using ordinary least squares OLS will result in an inconsistent estimate of p we need to demonstrate that the OLS ... View the full answer