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Gauss Markow Assumption: Reference: Jeffery M. Wooldridge. Chapter Two

The document discusses the five assumptions underlying the method of least squares, also known as the Gauss-Markov assumptions. The assumptions are: 1) the dependent variable Y is linearly related to the independent variable X and error term, 2) random sampling is used to collect the sample data, 3) the values of the explanatory variable X in the sample are not all the same, 4) the error term has an expected value of zero no matter the value of X, and 5) the error term has the same variance regardless of the value of X.

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75 views6 pages

Gauss Markow Assumption: Reference: Jeffery M. Wooldridge. Chapter Two

The document discusses the five assumptions underlying the method of least squares, also known as the Gauss-Markov assumptions. The assumptions are: 1) the dependent variable Y is linearly related to the independent variable X and error term, 2) random sampling is used to collect the sample data, 3) the values of the explanatory variable X in the sample are not all the same, 4) the error term has an expected value of zero no matter the value of X, and 5) the error term has the same variance regardless of the value of X.

Uploaded by

Padma Acharya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Gauss Markow Assumption

Reference: Jeffery M. Wooldridge.


Chapter two
ASSUMPTIONS UNDERLYING THE METHOD
OF LEAST SQUARES. Also Know as Gauss Markow
assumption

Assumption 1: Simple Linear Regression Model.
In the ppln model, the dependent variable Y,
is related to the independent variable X and
the error term.
Y =
0
+
1
x + u

Assumption 2: Random sampling
We have random sampling of size n, ((x,y):
1,2), following the population model
equation in assumption one.
Assumption 3: Sampl variation in the
explanatory variable.
The sample outcome on X, namely, (X, i=
1,2.n) are not all the same value.
Assumption 4: Zero conditional mean.
The error term has an expected value of zero
given any value of the explanatory variable.
E(U/X) = 0
Assumption 5: Homoskedasticity.
The error U has same variance given any
value of the explanatory variable.
Var (U/X): 2

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