ECONOMETRICS I

CHAPTER 8
MULTIPLE REGRESSION ANALYSIS:
THE PROBLEM OF INFERENCE

Textbook: Damodar N. Gujarati (2004)Basic

Econometrics, 4th edition, The McGraw-Hill Companies

8.1 THE NORMALITY ASSUMPTION

ONCE AGAIN
We continue to assume that the ui
follow the normal distribution with
zero mean and constant variance 2.
With normality assumption we find
that the OLS estimators of the partial
regression coefficients are best linear
unbiased estimators (BLUE).

8.1 THE NORMALITY ASSUMPTION

ONCE AGAIN

8.1 THE NORMALITY ASSUMPTION

ONCE AGAIN

8.2 EXAMPLE 8.1: CHILD MORTALITY

EXAMPLE REVISITED

8.2 EXAMPLE 8.1: CHILD MORTALITY

EXAMPLE REVISITED

8.3 HYPOTHESIS TESTING IN MULTIPLE

REGRESSION: GENERAL COMMENTS

8.4 HYPOTHESIS TESTING ABOUT

INDIVIDUAL REGRESSION
COEFFICIENTS

8.4 HYPOTHESIS TESTING ABOUT

INDIVIDUAL REGRESSION
COEFFICIENTS

8.4 HYPOTHESIS TESTING ABOUT

INDIVIDUAL REGRESSION
COEFFICIENTS

8.4 HYPOTHESIS TESTING ABOUT

INDIVIDUAL REGRESSION
COEFFICIENTS

8.4 HYPOTHESIS TESTING ABOUT

INDIVIDUAL REGRESSION
COEFFICIENTS

8.4 HYPOTHESIS TESTING ABOUT

INDIVIDUAL REGRESSION
COEFFICIENTS

8.5 TESTING THE OVERALL

SIGNIFICANCE
OF THE SAMPLE REGRESSION

The Analysis of Variance Approach to Testing the

Overall Significance of an Observed Multiple
Regression: The F Test

The Analysis of Variance Approach to Testing the

Overall Significance of an Observed Multiple
Regression: The F Test

The Analysis of Variance Approach to Testing the

Overall Significance of an Observed Multiple
Regression: The F Test

The Analysis of Variance Approach to Testing the

Overall Significance of an Observed Multiple
Regression: The F Test

Testing the Overall Significance of

a Multiple Regression: The F Test

Testing the Overall Significance of

a Multiple Regression: The F Test

An Important Relationship between

R2 and F

An Important Relationship between

R2 and F

An Important Relationship between

R2 and F
where use is made of the
definition R2 = ESS/TSS. Equation
on the left shows how F and R2 are
related. These two vary directly.
When R2 = 0, F is zero ipso facto.
The larger the R2, the greater the
F value. In the limit, when R 2 = 1,
F is infinite. Thus the F test, which
is a measure of the overall
significance of the estimated
regression, is also a test of
significance of R2. In other words,
testing the null hypothesis (8.5.9)
is equivalent to testing the null
hypothesis that (the population)
R2 is zero.

An Important Relationship between

R2 and F

Testing the Overall Significance of a

Multiple Regression in Terms of R2

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

This F value is highly significant, as the computed p value

is 0.0008.

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable
This F value is highly
significant, suggesting
that addition of FLR to
the model significantly
increases ESS and hence
the R2 value. Therefore,
FLR should be added to
the model.
Again, note that if you square the t value of the FLR coefficient in
the multiple
regression (8.2.1), which is (10.6293)2, you will obtain the F
value of (8.5.17).

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

The Incremental or Marginal Contribution

of an Explanatory Variable

8.6 TESTING THE EQUALITY OF TWO

REGRESSION COEFFICIENTS

8.6 TESTING THE EQUALITY OF TWO

REGRESSION COEFFICIENTS

8.6 TESTING THE EQUALITY OF TWO

REGRESSION COEFFICIENTS

8.6 TESTING THE EQUALITY OF TWO

REGRESSION COEFFICIENTS

8.6 TESTING THE EQUALITY OF TWO

REGRESSION COEFFICIENTS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

8.7 RESTRICTED LEAST SQUARES:

TESTING LINEAR EQUALITY RESTRICTIONS

General F Testing

General F Testing

General F Testing

General F Testing

General F Testing

General F Testing

General F Testing

General F Testing

General F Testing

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST

8.8 TESTING FOR STRUCTURAL OR

PARAMETER STABILITY OF REGRESSION
MODELS: THE CHOW TEST