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metricsexam1s05

# metricsexam1s05 - Applied Econometrics Midterm 14th of...

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Applied Econometrics Midterm 14 th of March, 2005 This exam consists of five short questions ( worth two points apiece ) and five long questions ( worth fourteen points each ) , for a total of 80 points. You have 80 minutes to answer all completely and clearly in the space provided. Short Questions: Define the following terms. If I gave multiple definitions for a single term, any of these definitions is acceptable. 1. Heteroskedasticity 2. Natural experiment 3. Instrumental Variable 4. Endogeneity 5. Consistency

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Question 1: Suppose that the model is y i = ! 1 + ! 2 " x i + e i ( the standard linear model with a single regressor ) . a. Derive the OLS estimator of ! 2 . b. Show that the OLS estimator is unbiased. State the assumptions necessary for this result ( and no others ) .
Question 2: Suppose the model is y i = ! 1 + ! 2 " x i + e i , and we estimate ˆ ! 2 by OLS. We want to interpret ˆ ! 2 as the average effect of a change in x i on y i . However, there are three reasons why this interpretation may be incorrect. Name and discuss them.

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Question 3:
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