, ECS3706 Assignment 2 (COMPLETE ANSWERS) Semester
2 2024 (399706) - DUE September 2024 ; 100% TRUSTED
Complete, trusted solutions and explanations.
1. Explain why econometricians must know and understand the
classical linear regression assumptions. (4)
Econometricians must know and understand the classical linear
regression model (CLRM) assumptions because these
assumptions form the foundation for conducting reliable,
unbiased, and efficient econometric analysis. By adhering to
these assumptions, econometricians ensure that the estimates
derived from regression analysis are valid and can be used for
hypothesis testing, prediction, and policy-making. Below is an
explanation of the key reasons econometricians must understand
these assumptions:
1. Unbiased and Consistent Estimators
One of the main reasons econometricians rely on the classical
linear regression assumptions is to obtain unbiased and
consistent estimates of the model parameters. If the assumptions
hold true, the Ordinary Least Squares (OLS) estimator provides
the Best Linear Unbiased Estimator (BLUE) under the Gauss-
Markov theorem. The assumptions ensure:
• Unbiasedness: On average, the estimated coefficients are
equal to the true population parameters, meaning that the
estimators are neither systematically overestimated nor
underestimated.
• Consistency: As the sample size increases, the estimators
converge to the true population parameters.
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