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3-25-09 - A one percentage point rise in the interest rate...

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Economic Statistics – Class Notes – 3/25/09 We can draw a line to fit any set of data, but the question is, is that line a “good” fit? RECALL: There is a gap between the actual value of Y and the predicted value of Y. Yi = actual Y value when X = Xi Yi = Predicted value of Yi when X = Xi Ybar = mean of Y
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SST = The sum of squared total deviation of Y from its mean SSE = The sum of squared error Y from the regression line the unexplained sum of squares SSR = The sum of squared regression the explained sum of squares 1. The Coefficient of Determination R 2 (Correlation coefficient) 2 Given: SST = SSE + SSR The fraction of the sum of squared deviations of Y from its mean that is explained = (R 2 )
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WORKSHEET (IN-CLASS) When the interest rate is zero Investment IS EXPECTED TO equal $2932 billion IS EXPECTED TO Statistical significance because this is a sample. There will be different numbers for a different sample.
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Unformatted text preview: A one percentage point rise in the interest rate is expected to cause investment to decline by $226.64 billion. • (This is a percentage) WATCH YOUR UNITS WHEN YOU MAKE YOUR INTERPRETATION For exam next Friday BE CAREFUL ABOUT YOUR INTERPRETATIONS! - “A 1% rise in investment is expected to cause the interest rate to fall by 226” • BE CAREFUL OF REVERSE CAUSALITY • You always start with the independent variable (R) having an effect on the dependent variable (I). INTERPRETATION: Thus, we have a 90% level of confidence that the true slope coefficient lies between (-161.94 and -291.34) THAT IS, in repeated sampling , 90% of all intervals so constructed will contain USE THIS INFORMATION TO FILL IN THE BLANKS ON THE WORKSHEET • Since the value of the test statistic falls in the critical region, we reject H0....
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3-25-09 - A one percentage point rise in the interest rate...

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