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ORLOV_ECON2123_LEC02

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This lecture covers the material related to the simple linear regression: ➢ Estimation of coefficients ➢ Unbiasedness, Efficiency, and Monte Carlo Experiments ➢ Testing hypothesis on coeffici ... ents ➢ Testing the goodness of fit of a linear regression This lecture will cover chapters 1 and 2 of the Dougherty textbook. Understanding this material is essential for understanding how the more complicated version of the model presented in the following chapters works. Y Y =?1 + ?2 X 1 X1 X2 X3 X4 X Suppose that a variable Y is a linear function of another variable X, with unknown parameters 1 and 2 that we wish to estimate. Suppose that we have a sample of 4 observations with X values as shown. Y Y =?1 + ?2 X 1 X1 X2 X3 X4 X If the relationship were an exact one, the observations would lie on a straight line and we would have no trouble obtaining accurate estimates of 1 and 2. Y Y =?1 + ?2 X 1 X1 X2 X3 X4 X In practice, most economic relationships are not exact and the actual values of Y are different from those corresponding to the straight line. ............................................CONTINUED................................................ [Show More]

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