LECTURE2_OLS_2010 - EC531: ECONOMETRICS Burak Saltoglu...

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Unformatted text preview: EC531: ECONOMETRICS Burak Saltoglu Lecture 2 Introduction to Linear Regression 2 What is econometrics? t is the study of the application of statistical methods to the analysis of economic phenomena History begins Moore (1914), Study of demand Working (1929), what do statistical demand curves show? Frisch, Tinbergen, Haavelmo, Kopmans (1950),.. Regression and Econometrics Consider Keynesian consumption function. 3 1 C Y = + Consumption Income 1 2 C Y = + 1 2 Regression and Econometrics Econometrics,provis such a relation by economic theory, test the existence of it and tries to find out what coefficients are , with available data. Time Series Cross-Sectional 4 Regression Like above example, think of This relation is called population regression line and indicates i.e., the curve passes thorugh the expected 5 1 Y X = + 1 ( | ) i i E Y X X = + Regression Graphically, 6 Y X 1 2 ( | ) i E Y X X = + Linearity Models like above are told to be linear.There are two definitions, (1) Linear in Variables (2) Linear in Parameters Examples: Linear in Parameters but nonlinear in variables Linear in variables but nonlinear in parameters Linear Regression Model Nonlinear Regression Model 7 2 1 ( | ) i i E Y X X = + 3 1 ( | ) i i E Y X X = + Sample Regression Function First, define a stochastic population regression function, The sample counterpart of this function is Stochastic Error Term Estimators of 1 and 2 8 1 ( ) i i Y X u = + + 1 i Y X = + Sample Regression Function For two samples of Ys and Xs, graphically, 9 Y X PRF SRF for red sample SRF for blue sample Sample Regression Function 10 Y X PRF X i SRF i Y i Y i u i u ( | ) i E Y X OLS (1) Zero Mean: (2) Common Variance: (3) No Serial Correlation: (4) No Correlation of X and U (5) Normality of s are normally distributed; 11 ( 29 E u i = 2200 i ( 29 2 i Var u = 2200 i ( 29 i j E u u = i j ( 29 i i E X u = u i u i ( 29 2 0, i u N : Other Assumptions...
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This note was uploaded on 10/25/2011 for the course ECON 501 taught by Professor Zobuz during the Spring '11 term at Istanbul Technical University.

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LECTURE2_OLS_2010 - EC531: ECONOMETRICS Burak Saltoglu...

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