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Introduction to Econometrics, Econ4261 Spring 2013

P ROBLEM S ET 1 (D UE F EBRUARY 7, T HURSDAY IN CLASS )

Answer the Followings 1. Calculate: a) E [X ], E [Y ] b) V ar[X ], V ar[Y ] c) Cov [X, Y ] d) ρ(X, Y ) from the distribution below Y =1 X = 5000 X = 10, 000 X = 15, 000 0 1/8 1/3 Y =0 1/4 1/8 1/6 (1)

**2. Suppose E [X ] = 1 and E [Y ] = 2 and suppose X and Y are independent. Evaluate: a) E [2X + 1] b) E [X + Y ] c) E [X − 2Y ] d) E [XY + 1] 3. Suppose V ar[X ] = 2, V ar[Y ] = 1, Cov [X, Y ] = 0. Evaluate: a) V ar[X + 2Y ] b) V ar[X − Y ] c) Cov [2X − Y, X − 1]
**

n

i=1 [Xi

4. Suppose c)

n

i=1 Xi

= 2 and

+ 2]

n

i=1 Yi

= 3. Evaluate: a)

n

i=1 [Xi

+ Yi ]

b)

n

i=1 [Xi

− 2Yi ]

5. Let X = 1 with n = 100. What is

6. Show that V ar[X ] = E [X 2 ] when E [X ] = 0.

n

i=1 Xi ? What is

n

i=1 [Xi − X ]? and What is

n

i=1

X +1 ?

7. Show that Cov [X, Y ] = E [XY ] when E [X ] = 0 or E [Y ] = 0. 8. Suppose V ar[X ] = 1, V ar[Y ] = 2, V ar[Z ] = 2, Cov [X, Y ] = 0, Cov [X, Z ] = −1, and Cov [Y, Z ] = 2. Obtain V ar[X − Y + 3Z ] 1

Show that M SE (b) = V ar(b) + bias2 (b) = E [(b − E [b])2 ] + (E [b] − β )2 n −X i=1 Xi Yi n i=1 Xi = −X n n 2 i=1 Xi i=1 Yi = n − nX 2 i=1 Xi Yi − nXY 11. Let b be an estimator of β . Show that (a) (b) n n i=1 (Xi i=1 (Xi − X )2 = − X )(Yi − Y ) = n 2 i=1 Xi 10. 3.24 in Stock and Watson 12. 2.6. 2. 2.3. Do questions 3. The Mean Squared Error is deﬁned as M SE (b) = E [(b − β )2 ].19 in Stock and Watson 2 .10. Do questions 2. 3. 3. 3.15.6.10.13.9.

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