Advanced Econometric Theory: Tutorial 1

2
1. Let xt iid( ; ), t = 1; : : : ; T . Find examples of the following:

(a) An estimator of that is unbiased and consistent.

(b) An estimator of that is unbiased but not consistent.
(c) An estimator of that is biased but consistent.

2. Consider the model:

yt = 1 + 2t + ut ; t = 1; : : : ; T

where E(u) = 0 and E(uu0 ) = 2

IT . Two estimators of 2 are considered:

(a) The OLS estimator ^ 2 from the above regression:

PT
^ = t=1 (t t)(yt y)
2 PT
t=1 (t t)2

(b) The estimator:

yT y1
2 =
T 1
PT T (T +1)
Show that both estimators are unbiased and consistent. [Hints: t=1 t= 2
,
PT 2 T (T +1)(2T +1)
t=1 t = 6
.]

3. Consider the linear regression model:

y =X +u

where X is a …xed T k matrix with full rank k and tth row x0t , E(u) = 0 and
E(uu0 ) = 2 IT . Determine whether the OLS estimator of is consistent when:
t
(a) k = 1 with x0t = , where 0 < < 1.
(b) k = 2 with x0t
= [1; Dt ], where Dt is a level shift dummy variable which
takes the value of zero for t = 1; :::; T (where 0 < < 1), and a value of
one for t = T + 1; :::; T .
(c) k = 2 with x0t = [1; t4 ].