(d In trying to model the demand for money as a function of interest rates (usin
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(d In trying to model the demand for money as a function of interest rates (using a simple regression model), would you rather observe economic data during a period in which interest rates were relatively stable, or a period in which rates were volatile? Why? (e) Two research workers, working independently of each other, estimated the coefficients of a simple linear model Y = + ßXit Ui by the method of least squares, each drawing samples of the same size from data with the same population parameters (but different nonrandom regressors) When they found out about each other's work, they decided to pool their results to obtain one joint estimator of B. Two possible ways of doing this were considered: (i) Taking a simple arithmetic mean (A + 2)2 (ii) Combining the two samples and obtaining a new estimator of of the two estimators: or by least squares Do these two methods differ? If so, which is preferred under the Gauss-Markov assumptions for the simple linear model?Explanation / Answer
1. in trying to model demand of money using simple linear regression , we should take data during a period in which interest rates are relatively stable . It gives more precise results than the volatile interest rates. High stand deviation makes the regression coefficient insigniicant.
2. if two research workers are working on the same sample and then later want to pool their regression results then they should adopt the second method because after pooling the results , the sample size will change. so , differrent regression should be run.
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