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Ecom 60Y Assigmmemt 1: Limear Æegressiom models

Due Date: fi June 202fi
This assignment carries 2† points (2†% of the total score). If you are submitting hand-
written answers, please write legibly, if not illegible answers will not be marked. Note that,
plagiarism is a serious academic offence which may result in nullification of your scores. If
you copy from one another, both who copied and who let his paper get copied will be
given a score of zero.

1). Consider the

model
4s = Ø fi ısfi ‡ Ø X ısX ‡ Ø 3 ısX ‡ xs

where xs ~ NID (0, aX) , 4s observable random variable and the ısj‘s, j = fi, X, 3, are
observable non-stochastic variables.

The data that follows is based on a sample of size n = fiX0 observations and
gives the sums of squares and cross-products of the indicated variables.

4 ıfi ıX ı3
4 fi9† 30 fi0 fi0
ıfi 30 20 0 †
ıX fi0 0 20 †
ı3 fi0 † † †

a). Compute the best linear unbiased estimates of the coefficients. (3

poimts) b). Give a 9†% confidence interval for Ø fi — Ø X . (2

poimts) c). Test the hypothesis that HO : Øfi ‡ Ø X = X and Ø X ‡ Ø3 = fi against

the alternative
hypothesis that HA : not HO at 9†% confidence level. (4 poimts)

2). Let ıfi , ıX , . . . , ın be a random sample from a normal distribution with mean µ

fi
and variance aX .

fi
 a). Find the maximum likelihood estimator of µX /a X . (4 poimts)

b). Find the asymptotic distribution of the maximum likelihood estimator of

obtained in part (a). (4
poimts)

3). Consider the following saving function,

‹s = Øfi ‡ ØX4s ‡ us

,
where us = 4s xs , E (xs ) = 0 and vav (xs ) = a Xs

a). Show that E ( us | 4s ) = 0 (2 poimts)

b). Show that (conditional) homoscedasticity assumption is violated. (2

poimts) c). Provide an expressions for E ( uX | 4s ). (2 poimts)

d). Discuss the "economic" meaning of the expression you got in (iii). (2

poimts)

Bonus: ⓟuestion 4 is a bonus and you are not required to do it. However, if
you provide a full answer to this question, you will be given a bonus of † points.
No point for an attempt!

4). Consider a K^—variables linear regression model in which the variance of the
MLE 8 of the true parameter vector 8O is vav .^8Σ and the information matrix
. Σ
6 X ln J (8O )
£ (8O) = —
E 6868J

Show
that vav .^8Σ — £ (8O )—fi ≤ O,
psd

in the sense that vav .^8Σ —£ (8O )—fi is a positive semi-definite (psd) matrix. (5 poimts)