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class7-06

class7-06 - Econ 444 Wednesday October 18 class 7 Econ 444...

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Econ 444, Wednesday October 18, class 7 Econ 444, Wednesday October 18, class 7 Robert de Jong 1 1 Department of Economics Ohio State University Robert de Jong Econ 444, Wednesday October 18, class 7

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Econ 444, Wednesday October 18, class 7 Wednesday October 18 Summary of Monday’s class: R 2 Today’s class material Midterm Summary of Monday’s class: R 2 , the coefficient of determination A measure between 0 and 1 of how well the data fit the model Robert de Jong Econ 444, Wednesday October 18, class 7
Econ 444, Wednesday October 18, class 7 R 2 : 0: poor fit; 1: perfect fit R 2 is the fraction of the variation in Y i that is explained by the model Definition: R 2 = 1 - RSS TSS = 1 - e 2 i ( Y i - ¯ Y ) 2 Extreme values for R 2 : 1 R 2 = 1 : e 2 i = 0 all residuals are zero all points are on the regression line 2 R 2 = 0 : e 2 i = ( Y i - ¯ Y ) 2 ˆ β 0 = ¯ Y and ˆ β 1 = 0 regression line is horizontal Robert de Jong Econ 444, Wednesday October 18, class 7

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Econ 444, Wednesday October 18, class 7 Exercise for today Faculty salaries as a function of “productivity” (1973 article) ˆ S i = 11 , 155 + 230 B i + 18 A i + 102 E i + 489 D i + 189 Y i + . . .
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