The ordinary least squares (OLS)

Question 1

Consider the simple linear regression model:

a) Setup the minimisation problem to derive the ordinary least squares (OLS) estimator for and use that to find the formula of OLS estimator. [20 marks]

b) State the Gauss Markov Theorem including all the assumptions and the meaning of the acronym BLUE. [15 marks]

c) What are the implications for OLS estimation if heteroskedasticity exists? [5 marks]

d) State the formula to calculate the standard error of the OLS estimate of when the error terms are homoskedastic. State the formula to calculate the standard error of the OLS estimate of when the error terms are heteroskedastic. [10 marks]

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