Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

2. Consider the binary variable version of the fixed effects model in the following equation, Yit=0+1Xit+2D2i+3D3i++nDni+uit, except with an additional regressor, D1i; that is, let

image text in transcribed

2. Consider the binary variable version of the fixed effects model in the following equation, Yit=0+1Xit+2D2i+3D3i++nDni+uit, except with an additional regressor, D1i; that is, let Yit=0+1Xit+1D1i+2D2i++nDni+uit. (a) Suppose that n=3. Show that the binary regressor and the "constant" regressor are perfectly multicollinear; that is, express one of the variables D1i,D2i,D3i and X0,it as a perfect linear function of the others, where X0,it=1 for all i,t. (b) Show that the result in (a) for general n. (c) What will happen if you try to estimate the coefficients of the regression by OLS? 3. Using the following regression below: Yit=0+1Xit+2D2i+3D3i++nDni+uit, what is the slope and intercept for (a) Entity 1 in time period 1 ? (b) Entity 1 in time period 3 ? (c) Entity 3 in time period 1? (d) Entity 3 in time period 3 ? 2. Consider the binary variable version of the fixed effects model in the following equation, Yit=0+1Xit+2D2i+3D3i++nDni+uit, except with an additional regressor, D1i; that is, let Yit=0+1Xit+1D1i+2D2i++nDni+uit. (a) Suppose that n=3. Show that the binary regressor and the "constant" regressor are perfectly multicollinear; that is, express one of the variables D1i,D2i,D3i and X0,it as a perfect linear function of the others, where X0,it=1 for all i,t. (b) Show that the result in (a) for general n. (c) What will happen if you try to estimate the coefficients of the regression by OLS? 3. Using the following regression below: Yit=0+1Xit+2D2i+3D3i++nDni+uit, what is the slope and intercept for (a) Entity 1 in time period 1 ? (b) Entity 1 in time period 3 ? (c) Entity 3 in time period 1? (d) Entity 3 in time period 3

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Process Auditing Techniques Guide

Authors: J. P. Russell

1st Edition

0873895959, 978-0873895958

More Books

Students also viewed these Accounting questions

Question

10. What is meant by a feed rate?

Answered: 1 week ago

Question

Draft a proposal for a risk assessment exercise.

Answered: 1 week ago