Midterm2006_answers - Midterm Answers Fall 2006 Question...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Midterm Answers Fall 2006 Question 1 & Part A: One point for each assumption & SLR1: y = & + B 1 x + u (Model is linear in & ;B 1 ) & SLR2: Our data f x i ;y i g constitute a random sample from y = & + B 1 x + u & SLR3: E ( u i j x i ) = 0 8 i & SLR4: x i 6 = c 8 i (some variation in x i ) & SLR5: V ( u i j x i ) = ¡ 2 8 i & Part B: E ( u i j x i ) = 0 ! cov ( x;u ) = 0 & Part C: I was looking for a concrete example that violates cov ( x;u ) = 0 & For example, you could have described a common example used in class: ln( wage ) = & + B 1 ( educ ) + u & What&s in u ? Innate ability, parent&s education & We must be assuming that the distribution of u s is the same for each level of x ¡ Or we could phrase it as the mean of all other factors is the same regardless of the amount of education attained & However, we are likely to violate the assumption because these unobservables in u are likely correlated with education & Part D: Formula for least squares estimator of & and & 1 & Slope: c &...
View Full Document

This note was uploaded on 11/14/2010 for the course ECON Econ 326 taught by Professor Hayes during the Spring '08 term at University of Maryland Baltimore.

Page1 / 3

Midterm2006_answers - Midterm Answers Fall 2006 Question...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online