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Note:The data on X* are assumed to be given. In deriving the other variables the assumptions made were as follows: (1) E(ui) = E(s) = E(w) = 0; (2) cov (X, u) = cov (X, s) = cov (u, s) = cov (w, u) = cov (s, w) = 0; (3) aU = 100, of = 36, and o2 = 36; and (4) Y* = 25 + 0.6X* + u,, Y = Y* + sh and X = X + w.

Note:The data on X* are assumed to be given. In deriving the other variables the assumptions made were as follows: (1) E(ui) = E(s) = E(w) = 0; (2) cov (X, u) = cov (X, s) = cov (u, s) = cov (w, u) = cov (s, w) = 0; (3) aU = 100, of = 36, and o2 = 36; and (4) Y* = 25 + 0.6X* + u,, Y = Y* + sh and X = X + w.

30I am indebted to Kenneth J. White for constructing this example. See his Computer Handbook Using SHAZAM, for use with Damodar Gujarati, Basic Econometrics, September 1985, pp. 117-121.

CHAPTER THIRTEEN: ECONOMETRIC MODELING 529

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