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Department of Economics
Econ 620
Instructor: Prof. Kiefer
Also, if the model is logYt = 10 +10 t+t , then and will be dierent
if we take log to base 10 or log to base e, simply because logYt = log e ln Yt, and
hence
10 10 t t
logYt = 10 + 10 t + t is equivalent to ln Yt = log e + log e + log e . To see
this, let t = n1 nt=1 t
n
t=1 (tt) log yi log e n (tt) ln yi
10 = n 2 = nt=1 2 = log e e and
t=1 (tt) t=1 (tt)
10 = log y 10 t = log e ln y log e e t = log e( ln y e t) = log ee .
2)
1
where f is univariate standard normal pdf and z is a function of x and y
taking value 1 if xy > 0 and taking value 0 if xy 0. Clearly, the support
of (X,Y) are the northeast and southwest quadrants (i.e., both x and y are
positive or both x and y are negative), so (X,Y) is not bivariate normal (since
the support of a bivariate normal is R2 ).
+ +
The marginal density (pdf) of X is g(x, y)dy = 2zf (x)f (y)dy =
+
2f (x) zf (y)dy.
+ +
Now, if x > 0, then zf (y)dy = 0 f (y)dy = 12 .
+ 0
And if x 0, then zf (y)dy = f (y)dy = 12 .
Therefore, the marginal pdf of X if f(x). Similarly for Y.
This exercise shows you that if (X,Y) is a bivariate normal, that is stronger
than just saying that the univariate distribution of X and of Y is normal.
3)
a) Yes. The model is linear, E(i ) = 0 for all i, X is full rank (has rank
one) and Var(i ) = 1 for all i (and the errors are uncorrelated since they are
independent random variables).
b) The OLS estimator for is
2 2
x y x
= i=1 i i
2 =+ i=1 i i
2 = 1 + 1 +2
5
2
.
i=1 i=1
This comes from minimizing the sum of squares residuals. Note that we do
not demeaned x and y in the formula for as in the case where there is an
intercept in the model.
So the exact distribution of is given by its probability mass function
(pmf), whichis: 14 if = 25 , 45 , 65 or 85 and 0 otherwise.
c) = xy = + 1 + 2
3 . It is unbiased, and its pmf is :
1
2 if = 1, 14 if
1 5
= 3 or 3 and 0 otherwise.
1
d) Var ( ) = 5 and Var ( ) = 29 . So Var ( ) >Var ( ).
4)
2
The information given in the question is not directly usable. However,
(yi y) (xi x) = (xi x) yi = xi yi x yi = xi yi nxy
i i i i i
220 440
= 4430 22 = 30
22 22
2
(xi x) = (xi x) (xi x) = (xi x) xi = x2i nx2
i i i i
2
220
= 2260 22 = 60
22
Hence,
30
= = 0.5
60
440 220
=
0.5 = 15
22 22
(b) R2 is dened as the ratio of the explained sum of squares(ESS) to total sum
of squares(TSS).
2
2 i (xi x)
2 2
2 2 i xi nx 2 60
R = 2 = 2 2 = 0.5 8900 22 202 = 0.15
i (yi y) i yi ny
Moreover,
(n 2) s2
2 (n 2)
2
1
2
where s2 = (n2) 2
i ei . We can also show that and s are independent each
other. Then,
2
i (xi x)
2
= = t (n 2)
(n2)s2 s 2
2 i (xi x)
(n2)
s2
=
where 2 . We want to reject the null hypothesis if
i (xi x)
T = > t0.975 (20)
3
under the null hypothesis. On the other hand,
1 1
2
s2 = e2i = yi i
x
(n 2) i (n 2) i
1
= 2 + 2 x2i 2
yi2 + yi + 2 i 2x
x i yi
(n 2) i
1 8900 + 22 152 + 0.52 2260 2 15 440
=
20 +2 15 0.5 220 2 0.5 4430
= 4. 25
is given by
1. (d) The distribution of
2 1 x2
N ,
+ 2
i (xi x)
n
is distributed as
Therefore,
N , 2
4
and
(n 2) s2
2 (n 2)
2
and and s2 are independent. Then,
= t (n 2)
(n2)s2
2 / (n 2)
5)
Then,
E (
) = hi + hi xi
i i
5
Therefore, unbiasedness requires that i hi = 1 and i hi xi = 0. Intro-
duce a new expression for hi ;
h i = mi + g i
since
1 1 2
mi g i = mi (hi mi ) = mi h i m2i = xwi hi xwi
i i i i i
n i
n
1 1 2x
2
= hi x wi hi + wi x2 wi2
n i i i
n n i i
1 (xi x) 1 1
= x 2 hi x 2 2
i (xi x) i (xi x)
n i
n
1 xi hi hi 1 1
= x 2 + x2 2 x2 2
i (xi x) i (xi x) i (xi x)
n i i
n
1 1 1 1
= + x2 2 n x
2
2 =0
i (xi x) i (xi x)
n
2
The third
row follows from
i hi = 1 and i wi = 1. The last row follows
from i xi hi = 0 and i hi = 1.