Econometrics: Assignment 1

Elisa Ossola
March 8, 2022

1 Problem 1: Linear estimator and its properties

Let X1 , ..., Xn be n non-stochastic variables form a random sample of mean u and variance σ 2 . We are interested
to estimate u. In particular, we introduce the following linear estimator for u:
n
X
u∗ = ai Xi .
i=1

1. The estimator u∗ is unbiased if and only if E(u∗ ) = u.

(a) Compute E(u∗ ) e V (u∗ ).

(b) Find the condition on ai such that u∗ is unbiased.
(c) Show that, for the unbiased u∗ ,
n
1X
u
b= Xi = X
n i=1
is a linear unbiased estimator.
(d) Compute V (b
u).
2. Let u∗ be a linear unbiased estimator for u:
X X
u∗ = ai Xi and ai = 1.
i i

(a) In a general setting, we have

1 1
ai = + bi (bi = ai − ).
n n
Give the conditions on bi such that u∗ is unbiased.
(b) Show that for the unbiased u∗ X
V (u∗ ) = V (b
u) + σ 2 b2i
i

and thus
V (u∗ ) ≥ V (b
u).

(c) What do you conclude on u

b?

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2 Problem 2: A numerical example
Let us consider the following linear regression:

yt = a + bt + εt , t = 1, 2, ..., 5,
where εt is the error term such that E(εt ) = 0 and V (εt ) = σ 2 . This model is called “linear trend model”: the
independent variable corresponds to the time. We can rewrite the model as follows:

yt = a + bxt + εt .

Complete the table with the numerical values:

t xt xt − x̄
1 x1 =
2 x2 =
3 x3 =
4 x4 =
5 x5 =

1. Compute the quantities myy , myx e mxx as function of the observations y1 , y2 , . . . , y5 .

2. Give, explicitly, the OLS etimator b̂ for parameter b, as function of y1 , y2 , . . . , y5 .

3. Show that b̂ is unbiased.

Let us consider the following observations for y1 , y2 , . . . , y5 :

y1 = 2, y2 = 3, y3 = 6, y4 = 6, y5 = 5.

4. Compute, using the OLS, bb, b

a, RSS.
5. Give an unbiased estimator for σ 2 .

6. Compute Vb (b
a), Vb (bb), Cov(b
d a, bb).

7. Compute ϵbi for i = 1, ..., 5 and verify that

ˆ
P
ϵi = 0
b
ˆ
P
ϵi x i = 0
b
ˆ
P 2
ϵi = SS
b
8. Let us assume the the error terms are normally distributed. Test, at the significance level at 5% the
following hypothesis:

ˆ H0 : b = 0
ˆ H0 : a = 1

9. Give a confidence intervals at 95% for b e a. Compare and comments the results with the ones obtained
computing the test above.

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3 Problem 3: Linear regression without intercept
Let us consider the following linear model:

yi = bxi + ϵi i = 1, ..., n.
Assumptions (H1)-(H4) holds.

1. Let us show the estimator for b, namely bb, obtained by applying the OLS methodology.
2. Show that bb is unbiased.
3. Compute the variance V (bb).

4. Show that bb is BLUE.

5. Give the expression of RSS and compute its expectation, E(RSS). (Facoltative)
6. Give an unbiased estimator for σ 2 . (Facoltative)