Assume that you will run the following regression: y = a +8z+ut. You believe that the...
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Assume that you will run the following regression: y = a +8z+ut. You believe that the errors might be serially correlated in the following fashion: ut=yo+y1ut-1+et a) Will OLS estimation be inconsistent? Why? b) Now you will run a slightly modified regression using OLS: y = a + Be + Oye-1+ u. Errors are still serially correlated. Will OLS coefficients be inconsistent? Why? Show your work! Assume that you will run the following regression: y = a +8z+ut. You believe that the errors might be serially correlated in the following fashion: ut=yo+y1ut-1+et a) Will OLS estimation be inconsistent? Why? b) Now you will run a slightly modified regression using OLS: y = a + Be + Oye-1+ u. Errors are still serially correlated. Will OLS coefficients be inconsistent? Why? Show your work!
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a ANSWER Yes OLS estimation will be inconsistent beca... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 9780273713630
13th Revised edition
Authors: James van Horne, John Wachowicz
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