21_Assumptions_handout - Assumptions and properties 73-261...

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Assumptions and properties 73-261 Econometrics October 11 Reading: Wooldridge 3.3-3.5, 5
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p. 2 © CMU / Y. Kryukov 73-261 2.1 Assumptions Overview Done with topic 1 – Mechanics of OLS Estimate, test, predict Reducing lots of numbers (data) to a few ones (coefficients, p -values) Topic 2: Assumptions and violations OLS is mechanical – numbers in, numbers out Interpreting numbers as answers to economic questions requires assumptions about data Reality can and does violate these assumptions You need to know how to fix violations Or at least be aware of the effects
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p. 3 © CMU / Y. Kryukov 73-261 2.1 Assumptions Plan for today Assumptions A1, A2: Population & data A3: Linear indepedence A4,A5: Mean & Variance A6: Normality of u Properties – what assumptions give us P1: Unbiasedness P2: Efficiency P3: Consistency P4: Normality of β ˆ
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