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Chapter 4:
Classical Normal Linear Regression
Model (CNLRM)
Iris Wang
iris.wang@kau.se
Sampling distributions
• We have studied the expected value and
variance of the OLS estimators
• In order to do inference, we need to know the
full sampling distribution of the estimator
• To make this
this sampling distribution tractable
tractable, we
now assume that the unobserved error term (u)
is normally distributed in the population.
¾ This is often referred to as the normality
assumption. (Assumption 10)
Assumption 10: Normality
• We continue to make the assumptions introduced
in the previous lecture (linear regression, no perfect collinearity,
homoskedasticity, …).
zero conditional mean, homoskedasticity
implies that
Chapter 5:
Interval Estimation and Hypothesis
Testing
Iris Wang
iris.wang@kau.se
Confidence intervals
• Once we have estimated the population parameter β
and obtained the associated standard error, we can
easily construct a confidence interval (CI) for βj.
• has a t distribution with n‐k‐1 degrees
of freedom (df).
• Define a 95% confidence interval for βj as
(upper limit)
6
4
Density
2
0
0
-.2 -.1 0 .1 .2
b1
Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
uncommon): ”The p‐value is the educ ,541 ,053 ,405 10,143 ,000
Chapter 6:
Extensions of the Two‐Variable
Linear Regression Model
Iris wang
iris.wang@kau.se
Log‐linear regression models
• In many cases relationships between
economic variables may be non‐linear.
• However we can distinguish between
functional forms that are intrinsically non‐
linear and those that can be transformed into
an equation to which we can apply ordinary
least squares techniques.
Log‐linear regression models
• Of those non‐linear equations that can be
transformed, the best known is the
multiplicative power function form
(sometimes called the Cobb‐Douglas
functional form), which is transformed into a
linear format by taking logarithms.
Log‐linear regression models
Production functions
For example, suppose we have cross‐section
data on firms in a particular
part u r industry with
observations both on the output (Q) of each
firm and on the inputs of labour (L) and capital
(K).
C id the
Consider h following
f ll i ffunctional
i l fform
Log‐linear regression models
Log‐linear regression models
Log‐linear regression models