Question: Consider a linear regression model of the form Y = a + b X + U , where U is the error and a and

Consider a linear regression model of the form Y

=

+

b X

+

,

where U is the error and a and b are coefficients that should be estimated. Suppose that X is a binary variable

(

it only takes values

0

1) .

Suppose also that a and b are estimated by the OLS method.

Prove that the OLS method will give estimates for

(1)

(

|

= 0)

and E

(

|

= 1) -

(

= 0)

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Proof that OLS estimates EYX0 and EYX1EYX0 We are given a linear regression model YabXU where Y is the dependent variable X is a binary independent variable X 0 or 1 a and b are coefficients to be est... View full answer

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