midterm2.

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Universidad del Desarrollo
Facultad de Economı́a y Negocios
Doctorado en Economı́a de Negocios
Prof.: Jean Sepúlveda Umanzor
Midterm Exam 2
Métodos Cuantitativos I
Please be sure to include all relevant in the derivation of your answers. The marks for each
question are given in squared brackets in the left hand margin. Note that you can invoke
the appropriate version of the WLLN and CLT as required without providing any necessary
additional conditions- however you must justify the form of the limit for the WLLN or the
mean and variance of the limiting distribution for the CLT.
1. Consider the linear regression model

yt = x0t β0 + ut t = 1, 2...T (1)

in which (i) {ut } is a sequence of i.i.d. random variables with E[ut ] = 0 and V ar[ut ] = σ02 ;
(ii) {xt } is a sequence of independently distributed k × 1 vectors which satisfy
limT →∞ T −1 Tt=1 E[xt x0t ] = M where M is a positive definite matrix; (iii){ut } and {xt } are
P

independent sequences. Let β̂T be the OLS estimator of β0 and σ̂T2 = (T − k)−1 Tt=1 e2t
P

where et = yt − x0t β̂T . Note that e0 e = u0 (I − P )u where P = X(X 0 X)−1 X 0 .

p
[20] (a) Show that σ̂T2 →− σ02 .
d
− N (0, σ02 M −1 ).
[20] (b) Show that T 1/2 (β̂T − β0 ) →
[10] (c) Let θ̂T be an estimator of θ0 . State the condition under which θ̂T is said to converge
in probability to θ0 . State the condition under which θ̂T is said to converge almost sure to θ0 .

2. Consider the linear regression model:

y = Xβ0 + u (2)

in which (i) X is a T × k matrix which is both fixed in repeated samples and has rank equal
to k; (ii) u ∼ N (0, σ02 IT ). Consider the case in which it is desired to test the null hypothesis
H0 : σ02 = 1. Let θ = [β 0 , σ 2 ]0 and β̂T = (X 0 X)−1 X 0 y, σ̂T2 = e0 e/T where e = y − X β̂T . Note
that:

• The unrestricted estimates of θ0 are θ̂u = [β̂ 0 , σ̂ 2 ]0

• The score vector for the unrestricted model is:
" #
X 0 (y − Xβ)/σ 2
ST (θ) =
−(T /2σ 2 ) + (y − Xβ)0 (y − Xβ)/(2σ 4 )

• The inverse of the information matrix is:

" #
−1 σ 2 (X 0 X)−1 0
Iθ,T = 0 4
0 2σ0 /T

[10] (a) Show that the restricted estimates of θ0 are: θ̂R = [β̂T0 , 1]0 . Hint: you need only
consider the first order conditions.

[15] (b) Show that the Wald statistic for H0 is given by:

WT = T (σ̂T2 − 1)2 /2σ̂T4

What is the limiting distribution of WT under H0 ?

[15] (b) Show that the Lagrange Multiplier statistic for H0 is given by:

PT
LMT = T −1 { 2
t=1 (eT − 1)}2 /2

What is the limiting distribution of LMT under H0 ?