Question

(1)Saying OLS estimators are BLUE means:

1.The expected value equals the true population parameter

2.The variance of b1 is minimized

3.The standard error is as small as it can be

4.Their standard errors are the smallest possible given that U and L hold

(2) What is the key to showing the B in BLUE?

(3)Heteroskedasticity means that

1.errors are correlated with one or more RHS variable

2.The error variance is different for different observations in your sample data

3.The errors are correlated over time

4.expected value of the errors is not zero

Answer 1

(1) Their standard error are the smallest possible given that U and L hold.

(2) B in BLUE stands for best.It implies that OLS estimators have minimum variance . In order to show B in BLUE, we have to show that OLS estimators have minimum variance .

(3) The error variance is different for different observations in your sample data.

Explanation:

BLUE stands for Best Linear Unbiased Estimator. OLS estimators are BLUE, if

1. OLS estimators are linear.

2. OLS estimators are unbiased.

3. OLS estimators have minimum variance.

Heteroscedasticity implies that variance of error term or residual term is not constant i.e.