Question: 16.8 Consider the model in Exercise 16.7 with Xt = u t + 1. a. Is the OLS estimator of b1 consistent? Explain. b.

16.8 Consider the model in Exercise 16.7 with Xt = u

t + 1.

a. Is the OLS estimator of b1 consistent? Explain.

b. Explain why the GLS estimator of b1 is not consistent.

c. Show that the infeasible GLS estimator b nGLS 1 ¡p b1 - f1 1 + f21 .
[Hint: Apply the omitted variable formula in Equation (6.1) to the quasi-differenced regression in Equation (16.23).]

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