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ECONOMETRICS
Simple Linear Regression Model
The Simple Linear Regression model explains the relationship between a dependent variable Y and
an independent variable X as follows
𝑌 = 𝛽𝑜 + 𝛽1 𝑋 + 𝜖
Multiple Linear Regression Model
Ordinary Least Squares (OLS) Estimation
Population Regression Function (PRF)
Sample Regression Function (SRF)
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Residuals
𝑅𝑒𝑠𝑖𝑑𝑢𝑎𝑙 = 𝐴𝑐𝑡𝑢𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 − 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑉𝑎𝑙𝑢𝑒
Sum of Squares
R-Squared
Standard Errors of Least Squares Estimators
2 2
( )
ˆ
var 2 =
i
; se ˆ2 = ( )
x
2
x 2
i
( ) n x ; se ( ˆ ) =
X
2 2
X
var ˆ1 = i
2 i
n x
2 2 2
i i
Where, var = variance and se = standard error and where 2 is the constant or homoscedastic
variance of i . 2 can be estimated by the following formula
ˆ 2 = ˆ
ˆ i 2 2
i.e., ˆ = i
n−2 n−2
t-test
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Functional Forms of Regression Models & Interpretation of Slope Coefficient
For a unit change in Xi, on an average expected value
Linear model ˆ
of Yi changes by amount.
A 1% change in Xi is associated with a change in Y of
Lin-Log model ˆ
0.01* amount.
Log-Linear For a unit change in Xi, expected value of Yi change
ˆ
model by %.
ˆ
Log-Log model A 1% change in Xi is associated with a % change in
Yi.
Some Important Relationships with respect to CLRM
Relationship between Regression Slope and Correlation Coefficient
Relationship between F-statistic and r2
Relationship between F and t2
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Relationship between r2 and t2
Relationship between R2 and Adjusted R2
F-test
Durbin-Watson Test
This is simply the ratio of the sum of squared differences in successive residuals to the overall error
sum of squares (ESS).
Breusch Godfrey Test (also termed as LM Test)
Goldfed-Quandt Test
RSS2 df
Statistic: =
RSS1 df
Park test
Spearman Rank-Correlation test
Assuming that the population rank correlation coefficient ρs is zero and n > 8, the significance of the
sample rs can be tested by the t test given as
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White Test
White test statistic follows the chi-square distribution with df equal to the number of regressors
(excluding the constant term) in the auxiliary regression. That is
Equation of Logit Model
Estimation of Logit Model
For estimating Logit Model, we will add the disturbance term (εi) to Equation
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