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Unformatted text preview: Econ 141 Unofficial Practice Questions: 1. Suppose you have the linear model Y t = b 1 + b 2 *X 2t + b 3 *X 3t +u t . a. If 2 , 2 * ) ( t t X k u Var = , where k is some constant, how can you transform the equation and perform the least squares procedure to get estimates of b 2 and b 3 ? Describe all the steps. b. If you decide to ignore the heteroskedasticity in a. above, are your OLS estimates of b 2 and b 3 still BLUE? Are the standard hypothesis tests still valid? Explain carefully. c. Now you are not sure that there is heteroskedasticity in the model but you suspect it is a linear function of the variables X 2 and X 3 . How would you test this hypothesis using the Whites test? Describe all the steps. 1. Consider the following model: i i i x y + + = 2 1 where x i = 0 or 1 is an indicator variable. In order to estimate a more flexible model, we fit a 2 nd order polynomial of x : i i i i x x y + + + = 2 3 2 1 When we run the regression, Excel will not provide an estimate for 3 . Why? a. Which model would have a higher R 2 ? 2. Substantial research documents a statistically significant relationship between an individual's height, H i , and the logarithm of his or her wages, logW i . This odd ....
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- Fall '08