Consider the regression model Yi = b0 + b1Xi + ui, where u1
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Consider the regression model Yi = b0 + b1Xi + ui, where u1 = u ?1 and ui = 0.5ui-1 + u ?i for i = 2, 3, . . . , n. Supp
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Consider the regression model Yi = b0 + b1Xi + ui, where u1 = u ?1 and ui = 0.5ui-1 + u ?i for i = 2, 3, . . . , n. Suppose that u ?i are i.i.d. with mean 0 and variance 1 and are distributed independently of Xj for all i and j. a. Derive an expression for E(UU?) = ?. b. Explain how to estimate the model by GLS without explicitly inverting the matrix ?. (Hint: Transform the model so that the regression errors are u ?1, u ?2, c, u ?n.)
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