Question: PRACTICE QUESTION 1 Consider the following regression equation yt = xt + t where t N(0, 1). IID You are given the following empirical information:

PRACTICE QUESTION 1

Consider the following regression equation

yt = xt + t

where

t N(0, 1). IID

You are given the following empirical information: y = [3 4 5 1 4] and X2 = [5 5 10 0 10]'

(i) Estimate by Least Squares

(ii) Discuss the statistical properties of the OLS estimators in this case.

(iii) What are the consequences of ignoring autocorrelation in the model above?

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