Econ 483. Computer Exercise 2-DGP Data are on the Catalyst Discussion Board (check myUW). Data Generating Process and Least Squares Estimation. In observed studies, we never know what the true model is. Therefore, it is di¢ cult to evaluate the estimation method such as least squares. In this we have the data set, we pretend as if we do not know the parameters of the model and estimate them. 1. Download dgpols.dta and open it by using use command. (1) How many variables are in the data set? (2) What is the sample size? 2. The variable x is a collection of realized numbers from uniform [0 ; 2] . The variable u is a collection of realized normally distributed random numbers with mean zero and standard deviation 6. (1) Calculate Cov ( X; U ) . (2) What is the sample covariance of x and u ? [useful command: gen, sum] (3) Is the sample covariance close to Cov ( X; U ) ? Can you say that x and
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