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Lecture+1+Review+SLR - Lecture1Review: Whatiseconometrics...

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1 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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