In Chapter 10 of Your Textbook, Panel Data Estimation Was $$\left( X _ { i t } , Y _ { i t } \right) , i = 1 , \ldots , n \text { and } t = 1 , \ldots , T$$

question 12

Essay

In Chapter 10 of your textbook, panel data estimation was introduced.Panel data consist
of observations on the same n entities at two or more time periods T.For two variables,
you have $$\left( X _ { i t } , Y _ { i t } \right) , i = 1 , \ldots , n \text { and } t = 1 , \ldots , T$$ where n could be the U.S.states.The example in Chapter 10 used annual data from 1982
to 1988 for the fatality rate and beer taxes.Estimation by OLS, in essence, involved
"stacking" the data.
(a)What would the variance-covariance matrix of the errors look like in this case if you
allowed for homoskedasticity-only standard errors? What is its order? Use an example of
a linear regression with one regressor of 4 U.S.states and 3 time periods.

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