class3-642-08

class3-642-08 - Econ 642, Monday March 31, class 3 Econ...

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Econ 642, Monday March 31, class 3 Econ 642, Monday March 31, class 3 Robert de Jong 1 1 Department of Economics Ohio State University Robert de Jong Econ 642, Monday March 31, class 3
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Econ 642, Monday March 31, class 3 Model assumptions Panel data: simple panel data methods Outline 1 Econ 642, Monday March 31, class 3 Model assumptions Panel data: simple panel data methods Robert de Jong Econ 642, Monday March 31, class 3
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Econ 642, Monday March 31, class 3 Model assumptions Panel data: simple panel data methods Theory of regression: Model assumptions Coefficients are normally distributed Considering 1.96 standard errors is correct practice Robert de Jong Econ 642, Monday March 31, class 3
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Econ 642, Monday March 31, class 3 Model assumptions Panel data: simple panel data methods 1.96 standard error procedure corresponds to test at 95% confidence level If we want to test at the 99% confidence level, we need 2.465 standard errors If absolute value of the t-value > 1.96, then we reject the null hypothesis that the coefficient equals zero Robert de Jong Econ 642, Monday March 31, class 3
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Econ 642, Monday March 31, class 3 Model assumptions Panel data: simple panel data methods Looking at 1.96 standard errors is only valid practice if the model assumptions are correct Conclusion: We need to understand the model assumptions Model assumptions are of a probabilistic nature Robert de Jong Econ 642, Monday March 31, class 3
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Econ 642, Monday March 31, class 3 Model assumptions Panel data: simple panel data methods The model assumptions Model assumptions: statistical and mathematical assumptions that are needed to make our “two standard errors” procedure work Robert de Jong Econ 642, Monday March 31, class 3
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Econ 642, Monday March 31, class 3 Model assumptions Panel data: simple panel data methods Model assumptions 1 y = β 0 + β 1 x 1 + β 2 x 2 + . . . + β 3 x 3 + u , where β 0 , β 1 , . . . , β k are the unknown parameters (constants) of interest, and
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class3-642-08 - Econ 642, Monday March 31, class 3 Econ...

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