Your Textbook Modifies the Four Assumptions for the Multiple Regression $\left( \operatorname { cov } \left( u _ { i t } , u _ { i s } \mid X _ { i t } , X _ { i s } \right) = 0 \right.$

question 12

Essay

Your textbook modifies the four assumptions for the multiple regression model by adding a new assumption. This represents an extension of the cross-sectional data case, where errors are uncorrelated across entities. The new assumption requires the errors to be uncorrelated across time, conditional on the regressors as well $\left( \operatorname { cov } \left( u _ { i t } , u _ { i s } \mid X _ { i t } , X _ { i s } \right) = 0 \right.$ for $t \neq s$ . (a)Discuss why there might be correlation over time in the errors when you use U.S.state
panel data.Does this mean that you should not use OLS as an estimator?

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Definitions:

State Appellate Courts

Intermediate courts in the U.S. legal system that review and rule on appeals from lower court decisions.

Written Decisions

Official documents from a court outlining the judgement and reasoning of a case's outcome, serving as a record for future reference.

Chronologically

In a time sequence, naming or listing events in the time order in which they occurred.

State Trial Court Decisions

Judgments made by the lowest level of the state court system where trials are held to determine the outcome of legal disputes.