pqf2_ak - Econ 410 - Introduction to Econometrics Practice...

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Econ 410 - Introduction to Econometrics Practice Questions for the Final Exam II - Answer Key 1. (a) E ( Y t )= E à 0 + t P j =1 u j ! = 0 + t P j =1 E ( u j )= 0 because from the conditional mean assumption we know that E ( u j )=0 for all j 0 s . This value is a linear function of t , so it is not constant over time. (b) var ( Y t )= var à 0 + t P j =1 u j ! = t P j =1 var ( u j )= 2 u because the conditional mean assumption implies that the error term is serially uncorrelated, so that cov ( u t ,u t j )=0 for any j 6 =0 . This value is a linear function of t , so it is not constant over time. (c) cov ( Y t ,Y t j )= cov à 0 + t P j =1 u j , ( t j ) β 0 + t j P k =1 u k ! = cov à t P j =1 u j , t j P k =1 u k ! =( t j ) σ 2 u again because the conditional mean assumption implies that the error term is serially uncorrelated, so that cov ( u t ,u t j )=0 for any j 6 =0 . This value is a linear function of t , so it is not constant over time. (d) E ( Y t )= E ( β 0 + u t )= β 0 This value is just a constant, so it does not change over time. (e) var ( Y t )= var ( β 0 + u t )= var ( u t )= σ 2 u This value is just a constant, so it does not change over time. (f)
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pqf2_ak - Econ 410 - Introduction to Econometrics Practice...

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