ANSWERS to ECONOMETRIC QUESTIONS

1. Define the concept of unbiased estimator.

An estimator is a function that is used to estimate a parameter of a statistical model.

An unbiased estimator is an estimator that, on average, produces an estimate that is equal
to the true value of the parameter that we want to estimate.

Formally, let λ be the parameter of interest, and let X 1, X 2 , ..., X T be a random sample of
size T from a population with a probability distribution f(x; λ ). An estimator ^λ is
unbiased if its expected value E( ^λ ) equals the true value of the parameter λ :

E( ^λ ) = λ
In other words, ^λ is unbiased for λ .
Intuitively, this means that if we were to repeatedly draw random samples from the
population and compute the estimator ^λ for each sample, the average value of those
estimators would converge to the true value of the parameter λ as the sample size gets
larger.

2. Define what a consistent estimator is.