Homework: some theoretical exercises

1. Let X be a bivariate distribution with mean µ and covariance matrix

Σ, where à ! à !
1 3 1
µ= and Σ = .
0 1 1
Define
Y = bt X + ε,
where ε follows a standard normal distribution and is independent of
X. Finally, let b = (−1, 2)t .

(a) Compute E(Y )

(b) Compute Var(Y )
(c) Compute the correlation between Y and ε.

2. Consider the regression model

log(yi ) = α + βxi + γzi + εi ,

for 1 ≤ i ≤ n and with εi the error terms. Suppose that β̂ = 1.5

and SE(β̂) = 0.75. Suppose that γ̂ = 4 and SE(γ̂) = 0.75. Moreover,
Cov(β̂, γ̂) = 0.2.

(a) Is the variable xi significant?

(b) Is β̂ significantly different from 5?
(c) Using the delta-method, compute SE(β̂ 2 ).
(d) Test whether H0 : β = γ holds.
(e) Compute SE(β̂γ̂)
(f) Complete the next sentence: “If x increases with 1 unit, then we
expect that y increases with ...........”