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Unformatted text preview: y be factors that are:
inherently unobservable/unmeasurable (e.g. a person’ drive);
s 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 may be factors that are:
inherently unobservable/unmeasurable (e.g. a person’ drive);
s
di¢ cult or very expensive to observe/measure (e.g. a person’ time
s
diary); 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 may be factors that are:
inherently unobservable/unmeasurable (e.g. a person’ drive);
s
di¢ cult or very expensive to observe/measure (e.g. a person’ time
s
diary);
observable and/or observed but “not the focus of the analysis”. 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 may be factors that are:
inherently unobservable/unmeasurable (e.g. a person’ drive);
s
di¢ cult or very expensive to observe/measure (e.g. a person’ time
s
diary);
observable and/or observed but “not the focus of the analysis”. Wlog we normalize the unconditional expectation of u to zero:
E [U ] = 0 Melissa Tartari (Yale) Econometrics (2.5) 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 may be factors that are:
inherently unobservable/unmeasurable (e.g. a person’ drive);
s
di¢ cult or very expensive to observe/measure (e.g. a person’ time
s
diary);
observable and/or observed but “not the focus of the analysis”. Wlog we normalize the unconditional expectation of u to zero:
E [U ] = 0 (2.5) Why wlog? Suppose not. Let E [U ] = λ 6= 0 then
E [Y ] = ( βo + λ) + β1 E [X ] which means that we cannot separately
identify βo from λ so we may as well normalize one of the two to zero,
we choose to normalize λ, instead of βo , to zero for convenience. Melissa Tartari (Yale) Econometrics 4 / 93 De…nition: the SLRM III
U represents factors...
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This note was uploaded on 02/13/2014 for the course ECON 350 taught by Professor Donaldbrown during the Fall '10 term at Yale.
 Fall '10
 DonaldBrown
 Econometrics

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