HW3 - Econ 444 Elementary Econometrics (Fall 2007) SUMMARY...

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SUMMARY of CHAPTER 4 and HOMEWORK EXERCISE: 3 Due at the beginning of class on Wednesday, October 17 1 KEY TERMS AND CONCEPTS variance, correlation, sample variance, sample correlation coe¢ cient, Clas- sical Assumptions, perfect multicollinearity, normal distributions, sampling distributions of OLS estimators, Linear unbiased estimators, Variances of OLS estimators, Gauss-Markov theorem, BLUE 2 FORMULAS AND RESULTS The Classical Assumptions I. The regression model is linear. Y i = & 0 + 1 X 1 i + ::: + K X Ki + ± i ; i = 1 ; 2 ; ::::::; N (1) II. The error term has a zero population mean. E [ ± i ] = 0 ; i = 1 ; 2 ; :::; N: (2) III. All explanatory variables are given and non-random. IV. The error terms are uncorrelated with each other. Cor ( ± i ; ± j ) = 0 ; fori 6 = j: (3) V. The error term has a constant variance (no heteroskedasticity) V ar ( ± i ) = ² 2 ; i = 1 ; 2 ; :::::; N (4) VI. There is no perfect linear relationship between the explanatory vari-
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HW3 - Econ 444 Elementary Econometrics (Fall 2007) SUMMARY...

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