Yt20KtHt1et with 075 a 10 points Write 2 as the.pdf

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Yt=20[KtHt(1)]et with =0.75. a. (10 points) Write (2) as the linear regression model: yt=0+1kt+2ht+ ut where yt=ln(Yt),kt=ln(Kt),ht=ln(Ht), and ut=ln(et). Note that the data were generated so that all the OLS assumptions hold in this linear regression model. i. According to (2), what are the true values of the parameters 0,1, and 2 in the linear model (3)? Explain your answer. ii. Show that, regardless of the actual value of , the original model (2) imposes the following restriction on the parameters of the linear regression: 1+2=1. iii. Estimate (3) using OLS. Report the estimated parameters and their standard errors. In addition, compute the residual sum of squares (call it RS SU ) and report its value. b. (15 points) We want now to test the restriction 1+2=1 using the method of the restricted and unrestricted linear regression model. 1 i. Write the equation of the restricted model that you plan to estimate. Explain why this is the appropriate restricted model to be estimated given the null hypothesis of interest. Make sure to define all the variables that you plan to use in estimating the restricted model..

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