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# slide7 - ECON321 Econometrics Lecture 7 Inferences Sasan...

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Unformatted text preview: ECON321 : Econometrics Lecture 7 : Inferences Sasan Bakhtiari University of Maryland, College Park Summer 2007 Session II, Testing Hypothesis Null Hypothesis ( H ): Hypothesis we would like to test for truth. Alternate Hypothesis ( H 1 ): The hypothesis against th one we are testing. Example: Average wage in MD is at most 50K. H : μ W ≤ 50 , H 1 : μ W > 50 . Test Statistic I Test Statistic is the value of random variable with known distribution that measures the distance between the hypothesize value and the measured value. For a sample mean we can write H : ¯ X ≤ μ, H 1 : ¯ X > μ, z = ¯ X- μ σ x / √ n ∼ N (0 , 1) . I Type I Error is the probability α of rejecting null hypothesis while it is in fact true. I Type II Error is the probability of accepting null hypothesis while it is in fact not true. I α is called the significance level and 1- α is called the confidence level . Example 7.1 Using values from Example 6.1 when drawing 10 samples: H : ¯ W ≤ 50 , H 1 : ¯ W > 50 , z = ¯ W- 50 √ 80 . 5 At α = 0 . 05 significance level the critical value is 1...
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slide7 - ECON321 Econometrics Lecture 7 Inferences Sasan...

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