ECMT 6002/6702: Econometric Applications Week 11
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ECMT 6002/6702: Econometric Applications
1 Practice problems
1. Consider the following panel model:
yit = β xit + vit ,
gross investment firm\ s value
where E [vit] = 0, E [xitvit] = 0 and Var (vit) = σ 2 for all i and t. Normally, firm i’s value is not directly observable and it is replaced by some observable characteristic, say 
it . Suppose that 
it contains a measurement error ηit for every t, i.e.,
it = xit + ηit . (1.1)
(i) Suppose that ηit = ηi (time-invariant measurement error) and E [xitηi] = 0. State if each of the following estimator is consistent and why.
(a) FE estimator, (b) FD estimator, (c) RE estimator, (d) OLS estimator.
(ii) Suppose that ηit = ηi (time-invariant measurement error) and E [xitηi] 
0. State if each of the following estimator is consistent and why.
(a) FE estimator, (b) FD estimator, (c) RE estimator, (d) OLS estimator.
(iii) Suppose that E[xitηit] 
0. State if each of the following estimator is consistent and why.
(a) FE estimator, (b) FD estimator, (c) RE estimator, (d) OLS estimator.
2 Empirical application
You are strongly encouraged to redo the computing exercises given in the assignment (groupwork) using the attached code. No additional exercise is given this week.
2023-06-19