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u N (E(u) , V(u))
1
2 Simple Regression Model
Estimation
b = y x
b
b = Sxy /Sxx
X
Syy (yt y) (yt y)
X
Sxx (xt x) (xt x)
X
Sxy (xt x) (yt y)
R2 = Sybyb/Syy
E (b
) =
E b =
b2 = Subub /(T 2)
h i
b ta/2 se(
b )b ; b + ta/2 se(
b )b
b ta/2 se(b
b ) ; b + ta/2 se(b
b )
2
3 Multiple Regression Analysis
Estimation
y = X + u ,
1
b = (X0 X) X0 y .
b2 = Subub /(T K 1)
Variance-covariance matrix of the error terms
var(u1 ) cov(u1 , u2 ) cov(u1 , uT )
cov(u2 , u1 ) var(u2 ) cov(u2 , uT )
V(u) = E[uu0 ] = = 2 IT
.. .. .. ..
. . . .
cov(uT , u1 ) cov(uT , u2 ) var(uT )
E(b1 ) = 1
E(b2 ) = 2
E(b
) =
Prediction
yb0 = x00 b .
h i
1
y0 y0 ) = 2 1 + x00 (X0 X) x0 .
var(b
3
4 Violation of Assumptions
Assumption A1:
Omitting a relevant variable:
1
E( 1 ) = 1 + (X01 X1 ) X01 X2 2 6= 1
b
e2 = E[(X2 2 )2 ] + 2
E()
b = E()
e2 = 2
2
Adjusted coefficient of determination R
2 Subub /(T K 1)
R = 1
Syy /(T 1)
T 1
= 1 1 R2
T K 1
Other criteria
Subub 2(K + 1)
AIC = ln +
T T
Subub (K + 1) ln T
SC = ln +
T T
Subub [1 + (K + 1) /T ]
PC =
T K 1
Other diagnostic tools: t-test, F -test, non-nested F -test, J-test.
4
Assumption A2:
Nonlinear regression functions
ln yt = + ln xt + ut (logarithmic)
yt = + ln xt + ut (semi logarithmic)
ln yt = + xt + ut (exponential)
ln yt = + (1/xt ) + ut (log inverse)
yt = + (1/xt ) + ut (inverse)
yt = + 1 x t + 2 x2t + ut (quadratic)
Zarembas Box-Cox-Test
Subub /y 2
T 2
l =
2
ln
Subub (1) ,
where Subub = Sum of residual squares of the model with ln yt
Prognostic Chow-test:
where SubI ub and SubIIub are the sum of residual squares of groups I and II.
White-Test
R2 T 2(v) ,
Breusch-Pagan-Test
b2t
u Sgbgb
gt = BP =
bt2
2
or alternatively
R2 T 2(v) ,
where =Number of slope parameters of the auxiliary model and R2 of the
auxiliary model.
5
Assumption B3:
AR(1)-Process :
ut = ut1 + et , 1 < < 1
X
E(ut ) = j E(etj ) = 0
j=0
e2
var(ut ) = 2
1 2
e2
cov(ut , ut ) = = 2 6= 0
1 2
Estimator for
PT
u
bt1 u
bt
b = Pt=2
T
.
u2
t=2 t1
b
Durbin-Watson Test
PT 2
ut u
(b
t=2 bt1 )
d = PT
b2t
t=1 u
2(1 b)
Durbins h-Test
s
T
h = b
1 T vd
ar(b2 )
Breusch-Godfrey-Test
BG = T R2 2(K)
5 Panel Estimation
Panel Estimation
Pooled Model
yi,t = + 1 x1i,t + 2 x2i,t + ... + K xKi,t + ui,t
Fixed-Effects-Model
yi,t = i + 1 x1i,t + 2 x2i,t + ... + K xKi,t + ui,t
Random-Effects-Model
yi,t = 1 x1i,t + 2 x2i,t + ... + K xKi,t + i,t
i,t = ui,t + ai