2. (15 points) Consider the wage equation wage = Bo + Bieduc + u, u =...

   

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2. (15 points) Consider the wage equation wage = Bo + Bieduc + u, u = educ. e where e is a random variable with E(e) Denote the OLS estimator of B to be 3. = 0 and Var(e) = o. Assume that e is independent of educ. (a) Discuss whether the zero conditional mean assumption (Assumption SLR.4) is satisfied, and whether is unbiased. (b) Discuss whether the homoskedasticity assumption (Assumption SLR.5) is satisfied. (c) Now, we transform model so that the regression error displays homoskedasticity: wage educ = 1 1 educ 1 educ + B + (2) U educ + B +e. (3) Denote the corresponding OLS estimator of to be 3. Show that B is an unbiased estimator for . Given a random sample, will the estimate have the same value as the estimate B? 2. (15 points) Consider the wage equation wage = Bo + Bieduc + u, u = educ. e where e is a random variable with E(e) Denote the OLS estimator of B to be 3. = 0 and Var(e) = o. Assume that e is independent of educ. (a) Discuss whether the zero conditional mean assumption (Assumption SLR.4) is satisfied, and whether is unbiased. (b) Discuss whether the homoskedasticity assumption (Assumption SLR.5) is satisfied. (c) Now, we transform model so that the regression error displays homoskedasticity: wage educ = 1 1 educ 1 educ + B + (2) U educ + B +e. (3) Denote the corresponding OLS estimator of to be 3. Show that B is an unbiased estimator for . Given a random sample, will the estimate have the same value as the estimate B?

Answer rating: 100% (QA)

a In order to determine if the zero conditional mean assumption Assumption SLR4 is satisfied we need ... View the full answer