Gauss Markov

Question 1

1. Zero error mean

Answer 1

Any deviations represented by et (random factors) average out to 0 across all data points

Question 2

2. Constant error variance (homoscedasticity)
   Var(et) = σ^2 (SD^2)

Answer 2

Spread of errors should be consistent regardless of independent variables values

Question 3

3. No serial correlation
   corr(ϵt , ϵs) = 0 or cov(ϵt , ϵs) = 0

Answer 3

The error in one observation does not influence the error in any other observations

Question 4

4. Exogeneity or independence of xt and et
   Cov(et, xt) = 0

Answer 4

independent variables do not influence error terms

Question 5

5. et are normally distributed

Answer 5

Error term follows normal distribution with mean of 0 and constant variance

Question 6

Which assumption(s) means unbiased

Answer 6

1. Zero error mean

Question 7

Which assumption(s) means consistent

Answer 7

1. Zero error mean
2. Exogeneity of x and et

Question 8

In the presence of serial correlation OLS estimates are….

Answer 8

Valid as still unbiased and consistent but standard errors calculated wrong