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Introduction to Econometrics 3rd Edition by James Stock, Mark Watson
Edition 3ISBN: 978-9352863501Introduction to Econometrics 3rd Edition by James Stock, Mark Watson
Edition 3ISBN: 978-9352863501 Exercise 15
Consider the binary variable version of the fixed effects model in Equation (10.11), except with an additional regressor, Dl i ; that is, let
a. Suppose that n = 3. Show that the binary regressors and the "constant" regressor are perfectly multicollinear; that is, express one of the variables D 1 i D2 i D 3 i and X 0,it as a perfect linear function of the others, where X 0,it , = 1 for all i, t.
b. Show the result in (a) for general n.
c. What will happen if you try to estimate the coefficients of the regression by OLS
a. Suppose that n = 3. Show that the binary regressors and the "constant" regressor are perfectly multicollinear; that is, express one of the variables D 1 i D2 i D 3 i and X 0,it as a perfect linear function of the others, where X 0,it , = 1 for all i, t.
b. Show the result in (a) for general n.
c. What will happen if you try to estimate the coefficients of the regression by OLS
Explanation
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a) The following is the given regression...
Introduction to Econometrics 3rd Edition by James Stock, Mark Watson
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