1. (2 points) We use a proxy variable as a solution to solving the econometric p
ID: 1105814 • Letter: 1
Question
1. (2 points) We use a proxy variable as a solution to solving the econometric problem of 2. (2 points) Measurement error in the dependent variable of our regression causes which of the following? Circle all that apply a. bias b. inconsistency c. larger standard errors d. multicollinearity 3. (2 points) The following two models are models. (nonnested / nested) Model 1: log(salary) = +4 sales + 2mktval + u Model 2: log(salary)-A + A log (sales) + 2 log (mktval) + u 4. (l point) How would we perform a test to help us choose between the different functional forms in model 1 and model 2 above? Describe each step. 5. (2 points) For each of the following statements, decide whether it is True or False and explain why. (Ü) Like cross-sectional observations, we can assume that most time series observations are independently distributed. (ii) The OLS estimator in a time series regression is unbiased under the first three Gauss Markov assumptions. (ii) A trending variable cannot be used as the dependent variable in muliple regression analysis. (iv) Seasonality is not an issue when using annual time series observations.Explanation / Answer
1. Proxy variable is used when variables can not be directly measured, that is proxy variable is used in the economic problem of unobserved variable. For an example per capita gdp is often used as proxy variable for measurement of standard of living. As standard of living is not directly measurable.
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