Question: For the model in Exercise 1, suppose that is normally distributed, with mean zero and variance 2 [1 + ( x)2]. Show that 2

For the model in Exercise 1, suppose that ε is normally distributed, with mean zero and variance σ2 [1 + (γ x)2]. Show that σ2 and γ2 can be consistently estimated by a regression of the least squares residuals on a constant and x2. Is this estimator efficient?

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