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Unformatted text preview: –1– Econ 220B, Winter 2008 James Hamilton Midterm Exam DIRECTIONS: No books or notes of any kind are allowed. Answer all questions on separate paper. 150 points are possible on this exam. 1.) (30 points) A colleague of yours is interested in estimating the value of β in a regression y t = x t β + ε t where x t and β are both scalars. The colleague wants to estimate β and test the null hypothesis that β = 0 . The colleague is concerned about heteroskedasticity of ε t and is considering three options. Option 1: Estimate β by OLS, use the OLS standard error to form a t test of the null hypothesis that β = 0 . Option 2: Use White heteroskedasticity- consistent standard errors. Option 3: Use feasible GLS. Your colleague is in a hurry and wants a very quick summary, not a long speech. a.) What are the main advantages and disadvantages of Option 2 relative to Option 1 in terms of the estimate of β and the validity of the t test?...
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This note was uploaded on 03/02/2012 for the course ECON 220b taught by Professor Hamilton,j during the Spring '08 term at UCSD.
- Spring '08