Question 1.a: Consider the following model:
are iid random variables and independent from each other and
independent of Z. (a) Will the least square regression of Y on X
yield a consistent estimator of ?1? If not, will the estimator
beupward or downward biased (with respect to the true value)?
Question 1.b: Consider Yt = Yt? 1 + ut with ut iid and Y0 = 0.
(a) Show that
is the variance of
. (b) Is
stationary? Why or why not?
Question 1.c: HAC standard errors should be used because:
(please choose the correct choice(s)):1. They are convenient
simpli?cations of the heteroskedasticity-robust standard errors.2.
Conventional standard errors may result in misleading inference.3.
They are easier to calculate than the heteroskedasticity-robust
standard errors and yet still allow you
to perform inference correctly.4. When there is a trend, then
conventional standard errors result in misleading inference.
Show transcribed image text Y, So + 31 x, + Ui
Y, So + 31 x, + Ui