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Lecture 1 Review: The Simple Linear Regression
What is econometrics?
Econometrics is about using data to estimate and test economic relationships
(existence, sign and magnitude) and make inference:
•
What is the impact of unemployment insurance on unemployment rates/durations?
•
What is the impact of education on wages?
•
What is the impact of having overweight friends on your own weight?
•
What is the impact of health insurance on health care utilization and health?
In all these examples, there is a
•
dependent variable
, or Y that is the outcome of interest (unemployment, wages,
probability of being overweight, health care utilization etc.), and an
•
independent variable
,
or X of which the effect on the outcome we want to
measure (unemployment insurance, education, having overweight friends, health
insurance etc.)
First we consider the
simple linear regression (SLR)
model.
A simple linear regression model involves
(1) one dependent variable
Y
;
(2) one independent variable or regressor
X
.
It’s written as
,
Y
X
u
α
β
=
+
+
Assume it is the true population model
.
Some terminologies
In the above simple linear regression model,

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