Advanced Econometrics 1; 2011/2012

Example midterm (1.5 hours)

This midterm exam is closed book. If you are asked to derive something, give all intermediate steps too.
Do not answer questions with a yes or no only, but carefully motivate your answer. You can earn
a maximum of 100 points equally divided among the 10 (sub)questions.
Question 1
Consider the following Simultaneous Equations Model:
y1i =

+ y2i + ui ;

y2i = y1i + zi
where zi iid( z ; 2z ) and ui
OLS estimator of equals

iid(0;

2)
u

^=
a. Derive the reduced form for y2i .

are independent, and assume that

PN

y2 )(y1i
i=1 (y2i
PN
y2 )2
i=1 (y2i

y1 )

6= 1. Furthermore, the

b. Derive the covariance between y2i and ui .

c. Derive that
plim ^ =

+ (1

2
u
2
z

2
u

Question 2
Consider the linear regression model yi = x0i + ui ; where x0i is a 1 K vector of explanatory variables
and i = 1; :::; N . Assume (yi ; xi ) is iid and ui j xi
iid(0, 2 ): Stacking the observations we have
0
^
y = X + u and the OLS estimator of equals = (X X) 1 X 0 y.
a. Show that
N 1=2 ( ^

) = (N

X 0 X)

b. Derive that E [xi ui ] = 0.

c. Derive that V [xi ui ] =

2E

[xi x0i ] :

d. Derive the limiting distribution of N 1=2 N1

e. Derive the limiting distribution of N 1=2 ( ^

PN

i=1 xi ui :

):

N 1=2

1 PN
xi ui ;
N i=1

Question 3
Consider the binary variable yi with density
f (yi jxi ; ) =
exp(x0 )

8
< pi
:

if yi = 1
pi

if yi = 0

and where pi = 1+exp(xi 0 ) the logit model. Assume the model is correctly specied and let 0 denote
i
the true value of . Suppose we have a random sample (yi ; xi ), i = 1; :::; N; and we want to estimate
by Maximum Likelihood. The log likelihood function is
LN ( ) =
a. Derive that the score vector is

N
X

yi ln pi + (1

yi ) ln (1

i=1

@LN ( ) X
=
(yi
@
i=1

b. Derive that E

@LN ( )
@

= 0:
0

pi ) xi :

pi ) :