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In: Economics

Suppose that the true model is y = β0 +β1x+u. You decided to run the model...

Suppose that the true model is y = β0 +β1x+u. You decided to run the model without the intercept term. a) Under what circumstance(s) would the coefficient term in your model (without the intercept term) be an unbiased estimator. b) Your boss likes your model choice because the conditional variance of your estimator is the most efficient (be- tween the two model choices). Evaluate your boss’s statement.

Solutions

Expert Solution

B)

B) so in case of regression through origin, we use raw sum of squares & cross products , rather than mean adjusted, which is used in intercept present model

So the variance of slope coefficient is lower , when intercept is not present.

& For regression through origin, variance of estimator is relatively lower , thus conditional variance is most efficient.

Thus boss statement is correct .

Rahul Sunny answered 2 years ago
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