This is the solution to question 2.5 in Doughertys Introduction to Economics. I

Question

This is the solution to question 2.5 in Doughertys Introduction to Economics. I do not understand why beta one is not used in the solution given that the question states that relationship between X and Y includes two parameters plus the disturbance term.

As investigntor correctly beliewes that the relationship between and Y is given by variabl 25 Giom a sample of observations on Y. X, and a third variable Z leterminant of Y), the investigator estimates 52 as e 2 (ehich bay 29 Demoustrate that this estimator is unbiased. Answer: Noting that }.-Y= 2 (X,-X) + th-t, we have: E(z,-z) (x,-X

Explanation / Answer

Here in the given question we need to check the “unbiased ness” of “2” only, which show the relationship between “Y” and “Z”, that’s why we don’t need to estimate “1” here. So, we have to find the solution of “2” and check the “unbiased” ness for “2” only. If we have given to check the “unbiased ness” of “1”, then we would have found “1” and the checked the “unbiased ness” for “1”.

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