In a random effects model, define the composite error vit = ai + uit,, where ai is uncorrelated with uit and the uit have constant variance 2u and are serially uncorrelated. Define eit = vit- 11eb9ee2_f171_da0e_8edd_1529ea54d429_SM2712_11 . where is given in (14.10). (i) Show that E(eit) = 0. (ii) Show that Var(eit) = 2u t = 1,...., T. (iii) Show that for t s, Cov(eit, eis.) = 0.

Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Edition 4ISBN: 978-0324660609

Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Edition 4ISBN: 978-0324660609

Exercise 9

In a random effects model, define the composite error vit = ai + uit,, where ai is uncorrelated with uit and the uit have constant variance 2u and are serially uncorrelated. Define eit = vit-

. where is given in (14.10).
(i) Show that E(eit) = 0.
(ii) Show that Var(eit) = 2u t = 1,...., T.
(iii) Show that for t s, Cov(eit, eis.) = 0.

Explanation

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Now consi...