HomeWork2_Econometrics

HomeWork2_Econometrics - ECONOMICS 598 ECONOMETRIC THEORY...

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Unformatted text preview: ECONOMICS 598 ECONOMETRIC THEORY AND APPLICATIONS HOMEWORK 2 Due: 3PM on October 15, 2010 1 1. (15 pts) For the regression model i i i i X X y ε β β β + + + = 2 2 1 1 for which the classical assumptions hold, you obtained the following results on the basis of 100 observations: 7 . 1 ˆ = β . 3 ˆ 1 − = β 9 . 1 ˆ 2 = β a. (5 pts) Test at the 5% significance level the hypothesis that 2 = β . b. (5 pts) An economic theory implies that 1 2 1 − = + β β . Test this prediction at the 5% significance level. c. (5 pts) Let the equation be re-estimated after X 2 is dropped from the regression. Under what conditions will the estimated coefficient of X 1 change? 2. (15 pts) Consider the model ε β + = X Y for which the classical assumptions hold and for which there are n observations. Let X be partitioned as follows [ ] 2 1 X X . That is, the model can be written as: ε β β + + = 2 2 1 1 X X Y Rather than OLS on this model, it is decided to use OLS on the following model: ε β β...
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HomeWork2_Econometrics - ECONOMICS 598 ECONOMETRIC THEORY...

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