Lahore School of Economics MPHIL Econometrics I (Winter 2011) Quiz 2

# Lahore School of Economics MPHIL Econometrics I (Winter 2011) Quiz 2

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Lahore School of Economics MPHIL Advanced Econometrics Winter 2011 Quiz 2 Question 1. Consider the following two equation model: (A) Verify that as stated, neither equation is identified. (5 points) (B) Suppose that the model was as stated. How would you write the model in the general matrix form: (5 points) y t ’Γ + x t ’B = ε t (C) Use this to find the reduced form equations of the model above. (10 points) Question 2. Suppose that you have a generalized least squares (GLS) model given by: (A) Write out the GLS estimator, , the OLS estimator, b , and the difference between them, . (10 points) (B) Suppose that the covariance between the GLS estimator and the difference between it and the OLS estimator is given by: Prove that this is equal to zero. (10 points) Question 3. Christenson and Greene (1976) estimated a generalized Cobb-Douglas cost function for electricity generation in the form: Ln C = α + βLnQ +γ(LnQ) 2 + δ k LnP k + δ l LnP l + δ f LnP f (1)

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Where P k , P l , P f indicate unit prices of capital, labour, and fuel respectively, Q is output and C is total cost. To conform to
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Lahore School of Economics MPHIL Econometrics I (Winter 2011) Quiz 2

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