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:

Arbitration

A form of alternative dispute resolution where a neutral third party, known as an arbitrator, makes a decision to resolve a dispute outside of court.

Summary Judgment

is a legal decision made by a court without a full trial, granted when there is no dispute over the material facts of the case and one party is entitled to judgement as a matter of law.

Material Fact

Any fact that could influence a decision-maker's actions or decisions, especially in legal and financial contexts.

Voir Dire

A legal procedure during jury selection where prospective jurors are questioned about their qualifications to serve on a jury.