# Shared Flashcard Set

## Details

Regression Analysis Test 2 Terms
all the vocab from the Studenmund's Using Econometric, ch. 8-10, 13
27
Economics
03/31/2010

Term
 perfect multicolinearity
Definition
 the variation in one variable is completely explained by movements in another explanatory variable
Term
 severe imperfect multicolinearity
Definition
 linear relationship between two or more independent variables that is so strong that it can significantly affect the estimation of the coefficients of variables.
Term
 dominant variable
Definition
 a variable that is so highly correlated with the dependent variable that it completely masks the effects of all other independent variables in the equation.
Term
 consequences of multicolinearity
Definition
 (1) Estimates will remain un biased; (2) The variances and thus the standard errors of the estimates will increase; (3) The computed t-scores will fall; (4) estimates become vary sensitive to changes in specification; (5) The overall fit of the eq. and estimation of the non-multicolinear variables will be largely unaffected
Term
 variance inflation factor
Definition
 method of detecting the severity of multicolinearity by looking at the extent to which a given explanatory variable can be explained by all the other explanatory variables in the equation (higher = more severe VIF)
Term
 redundant variable
Definition
 an explanatory variable that represents the same effect on y as another expl. variable
Term
 pure heteroskedasticity
Definition
 occurs when CA V is violated in a correctly specified equation. (CA V: the variance of the error term is constant)
Term
 impure heteroskedasticity
Definition
 heteroskedasticity caused by incorrect specification
Term
 proportionality factor Z
Definition
 The variance of the error term changes proportionally to the square of Z. The higher the Zi, the higher the variance for that observation.
Term
 The consequences of heteroskedasticity
Definition
 (1) pure heteroskedasticity does not cause bias in the coefficient estimates; (2)HS generally causes OLS to no longer the Best(minimum variance) estimator; (3)heteroskedasticity causes the OLS estimates of the SE(Bhat)'s to be biased, leading to unreliable T-scores and hypothesis testing
Term
 The Park Test
Definition
 tests the residuals of an equation to see if there is heteroskedasticity in the error term of the equation
Term
 Park test steps
Definition
 (1) Obtain the residuals of the estimated reg eq; (2) Use these residuals to form the dependent variable in a second regression; (3) test the significance of the coefficient of Z in the second regression with a t-test
Term
 The White Test
Definition
 another test for HS; to be used when Z is unknown
Term
 The White test steps
Definition
 (1) Obtain the residual of the estimated regression equation; (2) Use these residuals to form the dependent variable in a second regression that includes each X from the original equation, the square of each X, and the the product of eac X times every other X; (3) Test the overall significance of that equation with the chi-square test
Term
 heteroskedasticity-corrected (HC) standard errors
Definition
 SE(Bhats) that have been calculated specifically to avoid the consequences of heteroskedasticity
Term
 linear probability model
Definition
 linear in the coefficients equation used to explain a dummy variable.
Term
 Rp^2
Definition
 average percentage of ones explained correctly, and the percentage of zeros explained correctly
Term
 binomial logit model
Definition
 estimation technique that avoids the unboundedness of the linear probability model by using a variant of the cumulative logistic function
Term
 interpretation of an estimated logit coefficient
Definition
 divide by 4, interpret as a linear probability coefficient
Term
 multinomial logit model
Definition
 best way to tackle situation with more than one option, extension of the binomial logit model. n-1 logit equations are used
Term
 Impure serial correlation
Definition
 occurs when CA IV is violated by way of an incorrectly specified equation. (CA IV: no correlation between error term observations)
Term
 first-order serial correlation
Definition
 current value of the error term is a function of the previous value of the error term
Term
 first order auto-correlation coefficient
Definition
 measures the functional relationship between the value of an observation of the error term and the value of the previous observation of the error term
Term
 Durbin Watson D-statistic
Definition
 used to determine if serial correlation exists in a given equation. No serial correlation exists if dw stat = 2, extreme negative correlation if D = 4, extrem positive correlation if D=0.
Term
 generalized least squares
Definition
 method of ridding an equation of pure first order serial correlation, and in the process restoring the minimum variance principal to the estimation
Term
 positive serial correlation
Definition
 error term tends to have the same sign from one period to the next
Term
 Newey-West standard errors
Definition
 SE(Bhat)'s that take into account without chaninging the betas
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