Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN: 9780470458365
Author: Erwin Kreyszig
Publisher: Wiley, John & Sons, Incorporated
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ECONOMETRICS:  Consider the information in the picture,  consider carefully how we could estimate this equation in First Differences, describe carefully how we could estimate this equation using Fixed Effects. What does that mean and would it lead to consistent parameter estimates? Explain.

Consider the following population regression function: Yit = a + b*Xit + ai + eit With
E (eit|X,a)=0. The ai terms are not observed but we have data on Y and X.
Suppose i=1...N
and N=300, while t=1...T and T=10. And suppose we are told the following two facts:
Fact 1: Corr(Xit,a;)=0.7
Fact 2: Corr(eit,eit-1)=0.95
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Transcribed Image Text:Consider the following population regression function: Yit = a + b*Xit + ai + eit With E (eit|X,a)=0. The ai terms are not observed but we have data on Y and X. Suppose i=1...N and N=300, while t=1...T and T=10. And suppose we are told the following two facts: Fact 1: Corr(Xit,a;)=0.7 Fact 2: Corr(eit,eit-1)=0.95
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