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ECON 346 Final Review-with note

# ECON 346 Final Review-with note - Click to edit Master...

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Unformatted text preview: Click to edit Master subtitle style 5/12/11 ECON346 ECON 346 Final Review Jin Man Lee ECON346 5/12/11 ECON346 ECON346 5/12/11 ECON346 OLS Classical Assumptions • The regression model is linear in the coefficients, is correctly specified, and has additive error term. • The error term has a zero population mean: E( & i) = 0 • All explanatory variables are uncorrelated with the error term: E(Xi & i) = 0 ECON346 5/12/11 ECON346 Classical Assumptions ECON346 5/12/11 ECON346 Classical Assumptions Dummy variables What if Xi is not a number but variables like color, sex, color of skin, seasons like weekly, monthly, or quarterly? 1) Intercept Dummy 2) Slope Dummy 3) Seasonal Dummy Xi = SEXi ECON346 5/12/11 ECON346 Wrong Functional Forms Wrong functional form • bad predictions from out of sample Sampl e ECON346 5/12/11 ECON346 Omitted Variable Bias 3) Inconsistent: No matter how large the sample size, the bias does not disappear generally 4) The usual confidence interval and hypothesis tests are not reliable....
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ECON 346 Final Review-with note - Click to edit Master...

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