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Sheetcheat Econometrics

1) The OLS estimator βˆ is efficient in that the variance of βˆ is less than or equal to the variance of any other linear unbiased estimator. 2) Tests of hypotheses about regression parameters can be conducted using F-statistics that compare the sum of squared residuals from restricted and unrestricted models. 3) The OLS estimators are unbiased and consistent under the assumptions that the errors have mean zero and are uncorrelated with the regressors.

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62 views

Sheetcheat Econometrics

1) The OLS estimator βˆ is efficient in that the variance of βˆ is less than or equal to the variance of any other linear unbiased estimator. 2) Tests of hypotheses about regression parameters can be conducted using F-statistics that compare the sum of squared residuals from restricted and unrestricted models. 3) The OLS estimators are unbiased and consistent under the assumptions that the errors have mean zero and are uncorrelated with the regressors.

Uploaded by

romain
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 PDF, TXT or read online on Scribd
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Law of Iterated Expectations: E (E (X1 |X2 )) = E (X1 ), Efficiency of the OLS Estimator: OLS estimator is more

in the sense
E (X1 h (X2 ) |X2 ) = h (X2 ) E (X1 |X2 )
efficientthan
linear unbiased estimator ,
 any other

that V V is a positive semidefinite matrix. If it is asPn
0
0
Arithmetic Operations
on
Matrices:
a
b
=
b
a
=
a
b
,
i
i
i=1
Pm
sumed that E (u|X) = 0 and E (uu0 |X) = 2 I.
C = AB Cij = k=1 Aik Bkj , AI = IA = A, A (B + C) = AB +
0
0
0
AC, (AB) = B 0 A0 , A0 A = (A0 A) , AA0 = (AA0 ) , AA1 =
Estimating
the Variance of the Error Terms: 2 =
1
A A=I
Pn
2
1
i because tr (E (u0 MX u)) = E (tr (u0 MX u)) =
i=1 u
nk
0
0
0
Regression Models and Matrix Notation: yi = xi + u, E (tr (u uMX )) = (n k) E (tr (u u)) implies E (u MX u) =
2
(n k) .
y = X + u where X = (x1 , x2 , ..., xk )
Overspecification: The true model is y = X + u and we
Estimating Pthe Simple
Linear Regression
 Model:


Pn

n
estimate
the model y = X + Z + v, by FWL theorem =
1
1 =
Pni=1 yi
Pnn
Pni=1 x2i
,

=
1
1
0
0
0
0

2
(X MZX)
i=1 xi yi
i=1 xi P i=1 xi
 XMZ y = + (X MZ X) X MZ u, is unbiased
n
(x

x
)(y

y
)

i
i
Cove (x,y)
but V V is positive semidefinite from the Gauss-Markov
i=1
= P
, 2 = y 1 x

n
Ve (x)
(xi
x)2
i=1
theorem, where is the estimator using the true model.
EstimatingPthe Multiple Linear Regression Model:
n
2
0
SSR () =
i=1 (yi X) , FOC gives X (y X) = 0 thus
1
0
0
= (X X) X y

Underspecification: The true model is y = X + 


Z+ u
and we estimate the model y = X + v, since E =


1
1
E (X 0 X) X 0 (X + Z + u) = + (X 0 X) X 0 Z, is un-



0
The Geometry of OLS Estimation: X 0 y X = 0 biased if and only if X Z = 0 or = 0.


1
x0i y X = 0, PX = X (X 0 X) X 0 , MX = I PX , PX PX = Tests of a Single Restriction: y = X + u, u N 0, 2 I ,
2
2
2
0
since the model can be rewritten as y = X1 1 + x2 2 + u, by
PX and PX
= PX , PX MX = 0, kyk = kPX yk + kMX yk

x0 M
the FWL theorem we have 2 = x02MXX1xy2 N 2 , 2 x02 M1 x2 ,
2
1
Linear Transformations of Regressors: Z = XA for any we denote that s2 = y 0 MX y/ (n k), the test statistic is t =
2
nonsigular k k matrix A, PXA = PX , X = X AA1 =
x02 MX1 y
1/2 Student (n k).
(XA) A1
s(x02 M1 x2 )
The Frisch-Waugh-Lovell Theorem: y = X1 1 + X2 2 + u, Tests of Several Restrictions: H1 : y = X1 1 +
1
0

PX1 PX1 = PXPX1 = P


X20 MX1 y, 1 = X2 2 + u (unrestricted model), H0 : y = X1 1 +
X1 , 2 = (X2 MX1 X2 )
u
(restricted model), the appropriate test statistic is
1
(X10 X1 ) X10 y X2 2
r SSRur )/r
Fr,nk , where SSRr SSRur =
F2 = (SSR
ur /(nk)

SSR
2
1
0
PM X2 y
=
y MX1 X2 (X20 MX1 X2 ) X20 MX1 y
and
X1
2
2

2
Goodness of Fit of a Regression: T SS = kyk = kPX yk +
2
0
SSRur = kMX yk = MX1 y PMX1 X2 y = y M1 y
2
SSR
ESS
2
2
kMP
X yk = ESS + SSR, R = T SS = 1 T SS , Rc = 1
1
n
y 0 MX1 X2 (X20 MX1 X2 ) X20 MX1 y.
(n1)y 0 MX y
2
Pn i=1 ui 2 , Radj

where

is
a
vector
of
ones.
0
(nk)y M y
(yi
y)

i=1
An Example of the F Test: y = 1 +X2 2 +u u N 0, 2 I ,
1
y 0 M X2 (X20 M X2 ) X20 M y/(k1)
Rc2
Are OLS Parameter
Estimators
Unbiased:i y = X+u, u F =



h
= nk
2

1
2

0M X
k1
1R
0 M yy 0 M X
c
1
y
X
X
M
y
/(nk)
)
(
2

2
2
IID 0, 2 I , E = + E (X 0 X) X 0 u with assumption
E (u|X) = 0, is unbiased.
Testing the Equality of Two Parameter Vectors (Chow
0
0
0 0
test): y (y1, y2 ) anx
 X
 (X1 ,X2 ) and the followingregres
Are OLS Parameter Estimators Consistent: LLN:
0
y1
X1
2
plimn x
= E (X), which implies that plimn n1 X 0 X = sion y2 = X2 1 + X2 + u, u N 0, I , since
E (x0 x) where (x0 x)i,j = E (xi xj ). The OLS Estimator is is defined as 2 1 , the restriction that 2 = 1 is equivalent
1
to the restriction that = 0. If SSR1 and SSR2 denote the sums
Consistent because plimn n1 X 0 X
plimn n1 X 0 u = 0.
of squared residuals from these two regressions, and SSRr denotes
the sum of squared residuals from regressing y on X, the F statistic
 
r SSR1 SSR2 )/k
becomes
F = (SSR

(SSR1 +SSR2 )/(n2k) .


Precision of the Least Squares Estimates: V
=
1
2 (X 0 X) , y = x1 1 +X2 2 +u, by FWL theorem, 1 =
 
2
V 1 = x0 MX x1
1

x01 MX2 y
x01 MX2 x1 ,

0
Linear Functions
 of Parameter Estimates: = , =
V (
0 ,
) = V 0



The Variance of Forecast Errors: V yn+1 x0n+1 = 2 +




1
V x0n+1 = 2 1 + x0n+1 (X 0 X) xn+1

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