class11-06 - Econ 444, Wednesday November 1, class 10 Econ...

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Econ 444, Wednesday November 1, class 10 Econ 444, class 11 Robert de Jong 1 1 Department of Economics Ohio State University Monday November 6 Robert de Jong Econ 444, class 11
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Econ 444, Wednesday November 1, class 10 Monday November 6 1 Exercise for today 2 New material: 1 dummy variables 2 multicollinearity Robert de Jong Econ 444, class 11
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Econ 444, Wednesday November 1, class 10 Exercise for today: Hypothesis testing Note: “reject H 0 " means: we have statistical evidence against the hypothesis 1 Three possibilities: 1 Coefficient 0.01386 is approximately 3 standard errors away from 0 Reject H 0 2 t -value = 3.067 > 1.96 Reject H 0 3 p -value not present: it would have been smaller than 0.05 2 Same principle; only use 2.576 instead of 1.96 1 Coefficient 0.01386 is approximately 3 standard errors away from 0 Reject H 0 2 t -value = 3.067 > 2.576 Reject H 0 3 p -value not present: it would have been smaller than 0.01 Robert de Jong Econ 444, class 11
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Econ 444, Wednesday November 1, class 10 3 Question is: is 0.01386 less than 1.96 standard errors away from 0.3? Answer: NO; so, reject H 0 4 Tests the hypothesis H 0 : β 0 = 0. That is, it tests whether if return on equity equals zero, the log of CEO salary equals 0. This means salary equals 1; this makes no sense. 5 Less than 1%. 6 t-value = coefficient standard error , so standard error = coefficient t-value = 6 . 712168 77 . 468 = 0 . 0866 . Robert de Jong Econ 444, class 11
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Econ 444, Wednesday November 1, class 10 Why does the 1.96 standard error rule work? P
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This note was uploaded on 04/13/2009 for the course ECON 444 taught by Professor Ogaki during the Fall '07 term at Ohio State.

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class11-06 - Econ 444, Wednesday November 1, class 10 Econ...

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