1.7 Restricted Least Squares Estimation

Question 1

What is restricted least squares estimation?

Answer 1

It’s when we have info that enables us to impose linear restrictions on the parameters of the regression model. Such info can be summarised in matrix form as R x beta= r where R is qxk with rank q and r is qx1 and can be imposed at the estimation stage

Question 2

How is the constrained optimisation performed?

Answer 2

Using Lagrange function

Question 3

When is the variance of the RLS smaller than the variance of OLS?

Answer 3

When R x beta=r