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Basic Econometrics Problem Set I: I 1 2 I I I 1 2 I I

This document outlines 9 problems related to basic econometrics concepts. The problems cover topics such as population regression functions, the regression line passing through the origin, the coefficient of determination being negative, testing the unbiasedness of OLS slope estimators using Monte Carlo experiments, factors that can cause OLS estimators to be biased, efficiency of OLS slope estimators, consistency of OLS intercept and slope estimators, bias of the ML error variance estimator, and statements about t-tests, p-values, and null hypotheses.

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Prachi Tamta
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69 views

Basic Econometrics Problem Set I: I 1 2 I I I 1 2 I I

This document outlines 9 problems related to basic econometrics concepts. The problems cover topics such as population regression functions, the regression line passing through the origin, the coefficient of determination being negative, testing the unbiasedness of OLS slope estimators using Monte Carlo experiments, factors that can cause OLS estimators to be biased, efficiency of OLS slope estimators, consistency of OLS intercept and slope estimators, bias of the ML error variance estimator, and statements about t-tests, p-values, and null hypotheses.

Uploaded by

Prachi Tamta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Basic Econometrics

Problem Set I

(1) Consider the following Population Regression Functions:


Model I: Yi = b1 + b2*Xi + ui
Model II: Yi = a1 + a2*(Xi – X ) + ui

(a) Find the estimators of b1 and a1. Are they identical? Are their variances identical?
(b) Find the estimators of b2 and a2. Are they identical? Are their variances identical?
(c) What is the advantage, if any, of model II over model I?

(2) Does the regression line yi = b1 + b2*xi + ui , where xi = (Xi – X ) and yi = (Yi – Y ),pass
through the origin? Explain.

(3) Can the coefficient of determination in a simple linear regression model without an intercept
term be negative? Explain.

(4) Using a Monte Carlo experiment, how would you test the hypothesis that the OLS estimator
of the slope coefficient in the simple linear regression model is unbiased?

(5) Which of the following can cause OLS estimators to be biased?

(a) Heteroscedasticity
(b) Omitting an important variable
(c) A sample correlation coefficient of 0.95 between two independent variables both
included in the model.

(6) In the model Yi = b1 + b2*Xi + ui, show that the OLS estimator of the slope parameter is
efficient.

(7) Show that the OLS estimators of the intercept and slope parameters in the simple linear
regression are consistent.

(8) In the model Yi = b1 + b2*Xi + ui, where the errors are normally distributed, show that the
ML estimator of the error variance is biased.

(9) Explain whether the following are true, false, or uncertain:


(a) The t-test requires that the sampling distributions of the OLS estimators b̂1 and b̂2 follow the
normal distribution.
(b) The p-value and the size of a test statistic mean the same thing.
(c) If a null hypothesis is not rejected, it is true.

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