midterm1_ans

midterm1_ans - Department of Economics Spring 2006...

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Unformatted text preview: Department of Economics Spring 2006 University of California, Berkeley Prof. Woroch Midterm 1–Exam Code #193 Tuesday, February 21 st , 2006 Instructions. Write your name and SID, your GSI’s name, and the above ”Exam Code #” on the front cover of each of TWO blue books, and label them ”#1” and ”#2.” The exam has 3 questions. Put questions 1 and 2 in #1 and questions 3 in #2. There are 100 points with point assignments given in the instructions for each part. Put all of your answers in the bluebooks. Note that there are different versions of the exam. 1. You have the following simple model of salary: Y i = β + u i . (a) (7 pts) What is the interpretation of the parameter β ? The average salary in the sample. (b) (7 pts) Explain how you would estimate β using the least squares procedure. The Ordinary Least Squares procedure relies on the minimization of the sum of the squared residuals: min β n ∑ i =1 u 2 i = min β n ∑ i =1 ( Y i- β ) 2 (c) (7 pts) Would your answer to the previous question change depending on whether the Classical or Robust regression assumptions applied? Why or why not? Explain. No, my answer would not change. We use the same procedure whether we suspect we have homoskedasticity (classical model, OLS) or if we have heteroskedasticity (Robust model, OLS). In both cases, the estimates coefficientmodel, OLS)....
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midterm1_ans - Department of Economics Spring 2006...

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