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Unformatted text preview: 2.1)
We assume (2.1) to hold in the population, it de…nes the SLRM.
The key assumption embedded in (2.1) is that g is linear in the β. Melissa Tartari (Yale) Econometrics 3 / 93 De…nition: the SLRM II We choose to start by writing the following equation relating Y to X
and U :
Y = βo + β1 X + U
(2.1)
We assume (2.1) to hold in the population, it de…nes the SLRM.
The key assumption embedded in (2.1) is that g is linear in the β.
Another assumption embedded in (2.1) is that X has a linear e¤ect
on Y : a unit change in X has the same e¤ect on Y regardless of the
value of X : dY = β1 .
dX Melissa Tartari (Yale) Econometrics 3 / 93 De…nition: the SLRM II We choose to start by writing the following equation relating Y to X
and U :
Y = βo + β1 X + U
(2.1)
We assume (2.1) to hold in the population, it de…nes the SLRM.
The key assumption embedded in (2.1) is that g is linear in the β.
Another assumption embedded in (2.1) is that X has a linear e¤ect
on Y : a unit change in X has the same e¤ect on Y regardless of the
value of X : dY = β1 .
dX
Is this realistic? Not always. Melissa Tartari (Yale) Econometrics 3 / 93 De…nition: the SLRM II We choose to start by writing the following equation relating Y to X
and U :
Y = βo + β1 X + U
(2.1)
We assume (2.1) to hold in the population, it de…nes the SLRM.
The key assumption embedded in (2.1) is that g is linear in the β.
Another assumption embedded in (2.1) is that X has a linear e¤ect
on Y : a unit change in X has the same e¤ect on Y regardless of the
value of X : dY = β1 .
dX
Is this realistic? Not always.
Luckily, this restrictions will no longer obtain in the MLRM (while
linearity in the β will still apply). Melissa Tartari (Yale) Econometrics 3 / 93 De…nition: the SLRM III
U represents factors other than X that a¤ect Y ; we can think of U as
standing, loosely, for “unobserved”; these may be factors that are: Melissa Tartari (Yale) Econometrics 4 / 93 De…nition: the SLRM III
U represents factors other than X that a¤ect Y ; we can think of U as
standing, loosely, for “unobserved”; these ma...
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 Fall '10
 DonaldBrown
 Econometrics

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