Question 1 Using MLR assumptions 1 to 4 and focusing on and then plugging in :

= We can say that is consistent for if it converges in probability to , so we can write:

= = = because Cov(x,u) = 0

Question 2 a) Required to obtain OLS estimates for the slope coefficients Given , in deviation form the SRF can be written as:

In matrix notation the OLS estimates for slope coefficients can be obtained by:

which in deviation form can be written as:

Given,

Therefore

is

That is,

b) Required to test whether explanatory variables have significant influence on the dependent

variable

In a k-variable model

and

Therefore

In the variance-covariance matrix, diagonally from left to right are the variances of the OLS estimators therefore t statistics for testing the null hypotheses are: , so we do not reject H0 at 5% significance level, not significantly different from zero. , so we do not reject H0 at 5% significance level, not significantly different from zero. is is

, so we do not reject H0 at 5% significance level, significantly different from zero. c) Required to test the following hypothesis:

is not

at least one of the explanatory variables influence the dependent variable The F statistic for testing the null hypothesis can be written as

Therefore,

and , so we reject H0 at 5% significance level, at least one of the explanatory variables influence the dependent variable.

d) Required to derive the variance-covariance matrix assuming the disturbance term i. ii. iii. iv.

has zero expectation constant variance noncorrelated normally distributed

The variance-covariance matrix can be derived from assumptions 2 and 3, which in matrix notation can be written as

where

is estimated by

and I is a 24 x 24 identity matrix

therefore the variance-covariance matrix is

e) Required to derive the log likelihood function of the model, assuming we wanted to estimate the model using the MLE First we derive the MLE of the linear model, be written on matrix notation as where The multivariate normal density for is which can also

The multivariate normal for

given

is then

This means that we can use

to derive the log likelihood function

= = But

And

Therefore

In our model

Therefore the log likelihood function of the model is