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Econometrics 1. Consider the regression model of: murderratet = 0 + 1policebudgett + t where murderratet is the annual murder rate in Fresno in year
Econometrics
1. Consider the regression model of:
murderratet = β0 + β1policebudgett + Ɛt
where murderratet is the annual murder rate in Bakersfield in year t, policebudgett is the annual police budget in Bakersfield. The data set available has one observation for each of the last 36 years.
(a) What assumptions must hold for OLS to give an unbiased estimate of the β1, the structural effect of increasing the police budget on the murder rate?
(b) Which of these assumptions is most likely violated if policebudgett, depends on murderratet-1?
(c) What assumptions must hold for OLS to give a consistent estimate of the β1, the structural effect of increasing the police budget on the murder rate?
(d) (Which of these assumptions is most likely violated if policebudgett, depends on murderratet-1?
