# Shared Flashcard Set

## Details

Econometrics Exam 1
Chapters 1-6,17
24
Economics
02/19/2012

Term
 A stochastic error term must be added to all regression equations...
Definition
 to account for variations in the dependent variable that are not explained completely by the independent variables.
Term
 The components of the error term include:
Definition
 a. omitted variablesb. measurement errors in the datac. an underlying theoretical equation that has a different functional formd. purely random and unpredictable events
Term
 Residual
Definition
 The difference between a particular observation of the dependent variable and the value estimated from the regression equation.ei = Yi - Yihat
Term
 Bi
Definition
 Sum(Xi -Xbar)(Yi-Ybar)/Sum(Xi-Xbar)^2
Term
 Variation of dependent variable (TSS)
Definition
 Sum(Yi-Ybar)^2
Term
 R^2
Definition
Term
Definition
Term
 Classical Assumption I
Definition
Term
 Classical Assumption II
Definition
 E(error term) = 0
Term
 Classical Assumption III
Definition
 All X's are uncorrelated with error termIf ability got dumped in the error term, it would be correlated with schooling, so there would be bias.Most likely culprit for a change in sign.
Term
 Classical Assumption IV
Definition
 No serial correlation of error term.Most likely violated in time-series models.Lingering effects of advertising, etc.
Term
 Classical Assumption V
Definition
 Constant Variance/No HeteroskedasticityViolated in crosse-sectional data, like when comparing Rhode Island and Texas
Term
 Classical Assumption VI
Definition
 No Perfect MulticollinearityHappens if one variable is a multiple of the other, if they are off by a constant
Term
 Classical Assumption VII
Definition
 Error Normally Distributed (Not Required)
Term
 BLUE
Definition
 Best Linear Unbiased Estimator-Minimum Variance-Unbiased E(B) = B-Consistent: B goes to B-Normally Distributed
Term
 MSE
Definition
 = E(Var) + B(theta)^2efficient if minimized
Term
 Bias
Definition
 = Alpha2 * f(r ability, schooling)
Term
 OLS
Definition
 Ordinary Least Squares minimizes the sum of the squared residuals
Term
 TSS
Definition
 Sum(Yihat-Ybar)^2 + Sum(ei)^2
Term
 ESS
Definition
 Sum(Yihat-Ybar)^2
Term
 Decomposition of Variance
Definition
 Breakdown of TSS into ESS + RSS
Term
 degrees of freedom
Definition
 the excess of the number of observations (N) over the number of coefficients (including the incercept) estimated (K+1).
Term
 Six Steps of Regression Analysis
Definition
 a. Review Litb. Specificationc. Hypothesized. Collect Datae. Estimate equationf. Document results
Term
 Sampling Distribution of Bhat
Definition
 you know
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