MOOC Econometrics Test Exercise 2
MOOC Econometrics Test Exercise 2
Given the partitioned model \( y = X_1\beta_1 + X_2\beta_2 + \epsilon \), where \( X = (X_1 \
quad X_2) \), \( b_R \) is the OLS estimator of \( \beta_1 \) obtained by regressing \( y \) on \
( X_1 \). Therefore, \( b_R = (X_1^TX_1)^{-1}X_1^Ty \).
\[ E(b_R) = E((X_1^TX_1)^{-1}X_1^Ty) \]
\[ \text{var}(b_R) = \text{var}((X_1^TX_1)^{-1}X_1^Ty) \]
\[ \text{var}(b_R) = (X_1^TX_1)^{-1}X_1^T\text{var}(y)X_1(X_1^TX_1)^{-1} \]
\[ b_R = (X_1^TX_1)^{-1}X_1^Ty \]
**(d) Argue that \( P \) can be obtained by regressing each variable in \( X_2 \) on a constant
term and \( X_1 \):**
For each variable \( X_{2j} \) (where \( j \) denotes the column of \( X_2 \)):
You would need to refer to the specific lecture material to find the exact values of \( P \)
calculated from the wage data. This involves performing regressions of each variable in \
( X_2 \) on \( X_1 \) to obtain \( P \).
To check the numerical validity, you would compare \( b_R \) (from Lecture 2.1) with \( b_1 +
Pb_2 \) (from Lecture 2.5, if available). Due to rounding or precision issues, they may not
match exactly, but they should be very close. This equation checks if the OLS estimator \
( b_R \) for \( \beta_1 \) can be expressed as \( b_1 + Pb_2 \), confirming the relationship
derived theoretically.