notes-misspecification

notes-misspecification - Misspecification Data Issues...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Misspecification & Data Issues Misspecification & Data Issues text: S text: S -W 6.1~2,7.2 W 6.1~2,7.2 1. Violation of MLR/3 2. Misspecification – Detecting & Remedies 2.1 Functional Form (i) neglected non-linearities - inclusion (ii) neglected non-linearities - form 2.2 Omission of Relevant Variable 3. Data Issues 3.1 Missing Data 3.2 Outliers
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
A. Violation of MLR/3 A. Violation of MLR/3 MLR\3 aka ZCM : exogenous x endogenous x , i.e. x is correlated with u for any reason Violating MLR\3 (1) functional relationship between y and x is misspecified e.g. - forget to include the quadratic term in pop. that exhibits diminishing returns, and vice versa. - use level variable when log variable is what actually shows up in the pop. Model, and vice-versa. (2) omitting relevant variable remark : (1) is not including x when data is available (2) is not being able to include x because data is un available [ ] 1 | ,..., 0 k Eu x x =
Background image of page 2
Consequences (1) biased estimates (2) wrong estimates (even when unbiased) Comparing Comparing MLR/3 MLR/3 and and MLR/4 MLR/4 : MLR/4 : no perfect no perfect collinearity collinearity rules out certain relationships among x ; has nothing to do with u . via OLS, can know whether MLR/3 is violated or not. MLR/3 : ZCM ZCM restricts the relationship between x and u will never know with certainty whether the average value of u is unrelated to x
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
B. Detection & Remedies B. Detection & Remedies B.1. Functional Form Misspecification B.1. Functional Form Misspecification idea: satisfies MLR/3 no NL function of x should be significant when added into the estimated model B.1.1 Neglected Non B.1.1 Neglected Non -linearities linearities
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 15

notes-misspecification - Misspecification Data Issues...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online