Investigate the direction of bias in the slope coefficient

Reference no: EM131161138

In the simple macroeconomic model

C = β1 + β2Y + u
Y = C + I,

described in Exercise 10.1, demonstrate that OLS would yield inconsistent results if used to fit the consumption function, and investigate the direction of the bias in the slope coefficient.

Exercise 10.1

A simple macroeconomic model consists of a consumption function and an income identity:

C = β1 + β2Y + u
Y = C + I,

where C is aggregate consumption, I is aggregate investment, Y is aggregate income, and u is a disturbance term. On the assumption that I is exogenous, derive the reduced form equations for C and Y.

Reference no: EM131161138

Questions Cloud

Which is better an introvert or extrovert : Cultures which are collectivistic have a different take on this and actually value introverts more than the extroverts. In these cultures, staying quiet and listening are behaviors which are encouraged while speaking your mind is discouraged. Whic..

Difference between instrumental variable and proxy variable : What is the difference between an instrumental variable and a proxy variable (as described in Section 7.4)? When would you use one and when would you use the other?

How replications relate to the concepts of generalization : Explain the four different types of replications and the purpose of each. Include for each type of replication a brief original psychological study example (i.e., make up your own) that is different for each type of replication (i.e., do not build..

Derive the reduced form equations for c and y : where C is aggregate consumption, I is aggregate investment, Y is aggregate income, and u is a disturbance term. On the assumption that I is exogenous, derive the reduced form equations for C and Y.

Investigate the direction of bias in the slope coefficient : described in Exercise 10.1, demonstrate that OLS would yield inconsistent results if used to fit the consumption function, and investigate the direction of the bias in the slope coefficient.

Compute a company-wide overhead rate using machine hours : Compute the departmental overhead rates using machine hours as the cost driver. Compute a company-wide overhead rate using machine hours as the cost driver.

Briefly summarize the journal article you found : How do the sources differ with respect to the type of information provided? In other words, what information can be gained from a literature review (textbook) versus a case study/research report (journal article)? On what points do the two sources..

How would this affect the fitting of the model : Suppose that A(-1) in Exercise 10.5 also has an influence on S. How would this affect the fitting of the model?Exercise 10.5

Obtain a consistent estimator of ß2 and prove it consistent : Explain how this information could be used to obtain a consistent estimator of β2, and prove that it is consistent.

User Account

All Pages