ECS3706 Assignment
2 (COMPLETE
ANSWERS) Semester 2
2024 (399706) - DUE
September 2024 ;
100% TRUSTED
Complete, trusted
solutions and
explanations.
ADMIN
[COMPANY NAME]
, 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 need to understand the classical linear
regression assumptions because these assumptions underpin the
validity and reliability of the Ordinary Least Squares (OLS)
estimators. Here’s a detailed explanation of why these
assumptions are crucial:
1. Ensuring Unbiasedness of the Estimators
Assumption: Linearity in parameters,
E(ui∣Xi)=0\text{E}(u_i|X_i) = 0E(ui∣Xi)=0
• Explanation: For OLS estimators to be unbiased, the error
term should have a zero conditional mean given the
explanatory variables. This means that the expected value
of the error term should be the same across all values of the
explanatory variables, ensuring that the estimators do not
systematically overestimate or underestimate the true
parameter values.
Reason: If this assumption is violated, the OLS estimators will
be biased. Understanding this assumption helps econometricians
detect and correct any issues related to omitted variables,
measurement errors, or model specification errors that could
lead to biased results.
2. Guaranteeing Efficiency of the Estimators
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