# FP - Econ 444 Elementary Econometrics Fall 2007 SUMMARIES...

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Unformatted text preview: Econ 444 Elementary Econometrics Fall 2007 SUMMARIES AND SAMPLE PROBLEMS for CHAPTERS 6, 7, 8, 10 CHAPTER 6 KEY TERMS AND CONCEPTS Omitted variables, Omitted variable bias, Irrelevant variables FORMULAS AND RESULTS The adjusted R 2 , denoted by the symbol ¯ R 2 is defined by ¯ R 2 = 1- (1- R 2 ) N- 1 N- K- 1 (1) CHAPTER 7 KEY TERMS AND CONCEPTS Double-log functional form, Semilog functional form, Dummy variables CHAPTER 8 KEY TERMS AND CONCEPTS Perfect multicollinearity, Imperfect multicollinear- ity CHAPTER 10 KEY TERMS AND CONCEPTS Homoskedasticity, Heteroskedasticity, Weighted Lease Squares (WLS) FORMULAS AND RESULTS Consider the following regression: Y i = β + β 1 X 1 i + β 2 X 2 i + i (2) Assume that heteroskedasticity is caused by a proportionality factor Z i where Z i > 0: V ar ( i ) = σ 2 i = σ 2 Z 2 i . (3) where σ 2 is a constant. Consider the following transformation of the model Y * i = β 1 Z i + β 1 X * i + u i (4) 1 where Y * i = Y i Z i X * i = X i Z i u i = i Z i (5) The OLS estimators of β and β 1 obtained by applying the OLS to (4) are called weighted least squares estimators (WLS). SAMPLE PROBLEMS 1. Consider a regression ln Y i = β + β 1 ln X 1 i + β 2 ln X 2 i + i (6) where Y is the demand for food consumption, X 1 is the price of food, and X 2 is income....
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FP - Econ 444 Elementary Econometrics Fall 2007 SUMMARIES...

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