Advanced Econometrics 1; 2011/2012

Solutions example midterm

Question 1

a.
y2i =
(1

+ y2i + ui + zi

)y2i =

+ u i + zi

y2i =

zi

ui

b.
Cov [y2i ; ui ] = Cov

1
ui

= Cov
=
=

ui
1

; ui

; ui

zi

V [ui ]

1
2
u

c. Because
y1i

y1 =

we have
^=

1
N 1

(y2i

y2 ) + u i

u;

PN

y2 )(ui
i=1 (y2i
PN
y2 )2
i=1 (y2i
N 1

u)

Applying a LLN to both numerator and denominator of the estimation error we have that
^ p!

Cov [y2i ; ui ]
:
V [y2i ]

Because
V [y2i ] = V

1
1

zi

ui
1

(V [zi ] + V [ui ]) ;

we have that
2
u

plim ^ =

+
1

1
2

+ (1

2
z

2)
u

+
2
u

2
z

2
u

Question 2

a.
^ = (X 0 X)

X 0y

= (X 0 X)

X 0 (X + u)

+ (X 0 X)

+ (N

X 0u

X 0 X)

hence
N 1=2 ( ^

) = (N

X 0 X)

b. E [xi ui ] = E[E [xi ui j xi )]] = E[xi E [ui j xi ]] = E[xi

c. V [xi ui ] = E u2i xi x0i = E E u2i xi x0i j xi

1 PN
xi ui ;
N i=1

N 1=2

1 PN
xi ui :
N i=1

0] = 0 (a K

= E xi x0i E u2i j xi

1 zero vector).

2E

[xi x0i ] :

d. The random K-element vectors vi

xi ui (i = 1; :::; N ) are independent with zero mean and in
this case also identically distributed, because they have K K variance matrix 2 E [xi x0i ] ; which
is constant because xi is iid. Using the results derived above we nd
h
V N

1=2 PN
i=1 vi

1 PN
1 PN
i=1 V [vi ] =
N
N i=1

E xi x0i ;

from which it follows (using the LLN in reverse)

h
lim V N

N !1

1=2 PN
i=1 vi

1 PN
E xi x0i
N i=1
1 PN
2
plim
xi x0i
N i=1
2
Mxx :
2

=
=
=

lim

Now an appropriate CLT yields:

N

1=2 PN
i=1 vi

= N 1=2

e. Applying the product rule we have

N 1=2 ( ^

1 PN
d
xi ui ! N 0;
N i=1

) = (N

X 0 X)

! N Mxx1 0;
d

! N 0;

N 1=2
2

Mxx :

1 PN
xi ui
N i=1

Mxx1 Mxx Mxx1

Mxx1 :

Question 3

a. We have
@pi
@

exp(x0i ) (1 + exp(x0i )) xi exp(x0i ) exp(x0i )xi

(1 + exp(x0i ))2
1
exp(x0i )
xi
=
1 + exp(x0i ) 1 + exp(x0i )
= pi (1 pi ) xi ;
=

@ ln f (yi jxi ; )
@

hence

@ ln f (yi jxi ; ) @pi

@pi
@
yi 1 yi
=
pi (1 pi ) xi
pi 1 pi
(1 pi ) yi (1 yi ) pi
=
pi (1
pi (1 pi )
= (yi pi ) xi ;
=

i=1

i=1

@LN ( ) X @ ln f (yi jxi ; ) X

=
=
(yi
@
@

pi ) xi :

b.
E [yi jxi ] = 0 Pr [yi = 0jxi ] + 1 Pr [yi = 1jxi ]
= pi ;

@LN ( )
E
@

N
X

i=1
N
X

i=1
N
X
i=1

E [(yi

pi ) xi ]

E [E [(yi

E [(E [yi jxi ]

= 0;
hence
E

"

pi ) xi jxi ]]

@LN ( )
@

= 0:

pi ) xi ]

pi ) xi