Download B632_06lect12

OLS Review
Review of Multivariate OLS
– Topics
– Data Analysis
– Questions
Exam Particulars
April 11, 2006
Lecture 12
Slide #1
Review of Multivariate OLS
• Matrix algebra
• E.g., transpose, identity, addition & multiplication
– Regression in Matrix Notation
– Understanding the Matrix Calculation
• When X matrix has no unique X-1
• Partial Effects
– Calculating partial effects; interpretation
• Variable selection and model building
– Risks in model building
April 11, 2006
Lecture 12
Slide #2
More review...
• T-tests, hypotheses, etc.
• F-tests & nested models
• The evils of stepwise regression
– Why is it a problem?
• Critical OLS Assumptions
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Fixed X’s
Errors cancel out
Constant variance of the errors
Errors are uncorrelated
Errors are normally distributed
• Correctly specified models:
– Linear, correct X’s included and omitted
• Estimating dummy and interactive terms
April 11, 2006
Lecture 12
Slide #3
Summary of Assumption Failures
and their Implications
Problem
Biased b
Biased SE
Invalid t/F
Hi Var
Non-linear
Yes
Yes
Yes
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Omit relev. X
Yes
Yes
Yes
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Irrel X
No
No
No
Yes
X meas. Error
Yes
Yes
Yes
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Heterosced.
No
Yes
Yes
Yes
Autocorr.
No
Yes
Yes
Yes
X corr. error
Yes
Yes
Yes
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Non-normal err.
No
No
Yes
Yes
Multicollinearity
No
No
No
Yes
April 11, 2006
Lecture 12
Slide #4
Testing for OLS Failures
• Can’t check some assumptions
– which ones?
• Can check for:
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Linearity
Whether an X should be included
Homoscedasticity
Autocorrelation
Non-normality
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Univariate and bivariate analyses
Plots
Tolerances
Influence analyses
• Method
April 11, 2006
Lecture 12
Slide #5
Exam
• Posted at noon on Wednesday, April 12th
• Will be due before class, Tuesday April 18th
• (late exams won’t be accepted)
• Turn the exams in via e-mail, sent to me as
attachments
• Questions?
April 11, 2006
Lecture 12
Slide #6
Coming Up...
• Chapter 7: Logit Regression Analysis
April 11, 2006
Lecture 12
Slide #7