Principles

of Econometrics, 4th Edition

Table of Contents
Preface
Chapter 1 An Introduction to Econometrics

1.1WhyStudyEconometrics?
1.2WhatisEconometricsAbout?

1.2.1SomeExamples
1.3TheEconometricModel
1.4HowAreDataGenerated?

1.4.1ExperimentalData

1.4.2NonexperimentalData
1.5EconomicDataTypes

1.5.1TimeSeriesData

1.5.2CrossSectionData

1.5.3PanelorLongitudinalData
1.6TheResearchProcess
1.7WritinganEmpiricalResearchPaper

1.7.1WritingaResearchProposal

1.7.2AFormatforWritingaResearchReport
1.8SourcesofEconomicData

1.8.1LinkstoEconomicDataontheInternet

1.8.2InterpretingEconomicData

1.8.3ObtainingtheData

Probability Primer

LearningObjectives
Keywords
P.1RandomVariables
P.2ProbabilityDistributions
P.3Joint,MarginalandConditionalProbabilities

P.3.1MarginalDistributions

P.3.2ConditionalProbability

P.3.3StatisticalIndependence
P.4Digression:SummationNotation
P.5PropertiesofProbabilityDistributions

P.5.1ExpectedValueofaRandomVariable

P.5.2ConditionalExpectation

P.5.3RulesforExpectedValues

P.5.4VarianceofaRandomVariable

P.5.5ExpectedValuesofSeveralRandomVariables

P.5.6CovarianceBetweenTwoRandomVariables
P.6TheNormalDistribution
P.7Exercises

Chapter 2 The Simple Linear Regression Model

LearningObjectives
Keywords
2.1AnEconomicModel
2.2AnEconometricModel

2.2.1IntroducingtheErrorTerm
2.3EstimatingtheRegressionParameters

2.3.1TheLeastSquaresPrinciple

2.3.2EstimatesfortheFoodExpenditureFunction

2.3.3InterpretingtheEstimates

2.3.3aElasticities

2.3.3bPrediction

2.3.3cComputerOutput

2.3.4OtherEconomicModels
2.4AssessingtheLeastSquaresEstimators

2.4.1TheEstimatorb2

2.4.2TheExpectedValuesofb1andb2

2.4.3RepeatedSampling
2.4.4TheVariancesandCovarianceofb1andb2
2.5TheGaussMarkovTheorem
2.6TheProbabilityDistributionsoftheLeastSquaresEstimators
2.7EstimatingtheVarianceoftheErrorTerm

2.7.1EstimatingtheVariancesandCovariancesoftheLeastSquares
Estimators

2.7.2CalculationsfortheFoodExpenditureData

2.7.3InterpretingtheStandardErrors
2.8EstimatingNonlinearRelationships

2.8.1QuadraticFunctions

2.8.2UsingaQuadraticModel

2.8.3ALogLinearFunction

2.8.4UsingaLogLinearModel

2.8.5ChoosingaFunctionalForm
2.9RegressionwithIndicatorVariables
2.10Exercises

2.10.1AlgebraicExercises

2.10.2ComputerExercises
Appendix2ADerivationoftheLeastSquaresEstimates
Appendix2BDeviationFromtheMeanFormofb2
Appendix2Cb2isaLinearEstimator
Appendix2DDerivationofTheoreticalExpressionforb2
Appendix2EDerivingtheVarianceofb2
Appendix2FProofoftheGaussMarkovTheorem
Appendix2GMonteCarloSimulation

2G.1TheRegressionFunction

2G.2TheRandomError

2G.3TheoreticallyTrueValues

2G.4CreatingaSampleofData

2G.5MonteCarloObjectives

2G.6MonteCarloResults

Chapter 3 Interval Estimation and Hypothesis Testing

LearningObjectives
Keywords
3.1IntervalEstimation

3.1.1Thetdistribution

3.1.2ObtainingIntervalEstimates

3.1.3AnIllustration

3.1.4TheRepeatedSamplingContext
3.2HypothesisTests

3.2.1TheNullHypothesis

3.2.2TheAlternativeHypothesis

3.2.3TheTestStatistic

3.2.4TheRejectionRegion

3.2.5AConclusion
3.3RejectionRegionsforSpecificAlternatives

3.3.1OnetailTestswithAlternativeGreaterThan(>)

3.3.2OnetailTestswithAlternativeLessThan(<)

3.3.3TwotailTestswithAlternativeNotEqualTo()
3.4ExamplesofHypothesisTests

3.4.1RighttailTests

3.4.1aAOnetailTestofSignificance

3.4.1bAOnetailTestofanEconomicHypothesis

3.4.2ALefttailTest

3.4.3TwotailTests

3.4.3aATwotailTestofanEconomicHypothesis

3.4.3bATwotailTestofSignificance
3.5Thepvalue

3.5.1pvalueforaRighttailTest

3.5.2pvalueforaLefttailTest

3.5.3pvalueforaTwotailTest

3.5.3pvalueforaTwotailTestofSignificance
3.6LinearCombinationsofParameters

3.6.1EstimatingExpectedFoodExpenditure

3.6.2AnIntervalEstimateofExpectedFoodExpenditure

3.6.3TestingaLinearCombinationofParameters

3.6.4TestingExpectedFoodExpenditure
3.7Exercises

3.7.1Problems

3.7.2ComputerExercises
Appendix3ADerivationofthetdistribution
Appendix3BDistributionofthetstatisticunderH1
Appendix3CMonteCarloSimulation

3C.1RepeatedSamplingPropertiesofIntervalEstimators

3C.2RepeatedSamplingPropertiesofHypothesisTests

3C.3ChoosingtheNumberofMonteCarloSamples

Chapter 4 Prediction, Goodness of Fit and Modeling Issues

LearningObjectives
Keywords
4.1LeastSquaresPrediction

4.1.1PredictionintheFoodExpenditureModel
4.2MeasuringGoodnessofFit

4.2.1CorrelationAnalysis

4.2.2CorrelationAnalysisand R 2

4.2.3TheFoodExpenditureExample

4.2.4ReportingtheResults
4.3ModelingIssues

4.3.1TheEffectsofScalingtheData

4.3.2ChoosingaFunctionalForm

4.3.3ALinearLogFoodExpenditureModel

4.3.4UsingDiagnosticResidualPlots

4.3.4aHeteroskedasticResidualPattern

4.3.4bDetectingModelSpecificationErrors

4.3.5AretheRegressionErrorsNormallyDistributed?
4.4PolynomialModels

4.4.1QuadraticandCubicEquations
4.5LogLinearModels

4.5.1AGrowthModel

4.5.2AWageEquation

4.5.3PredictionintheLogLinearModel

4.5.4AGeneralized R 2 Measure

4.5.5PredictionIntervalsintheLogLinearModel
4.6LogLogModels

4.6.1ALogLogPoultryDemandEquation
4.7Exercises

4.7.1Problems

4.7.2ComputerExercises
Appendix4ADevelopmentofaPredictionInterval
Appendix4BTheSumofSquaresDecomposition
Appendix4CTheLogNormalDistribution

Chapter 5 The Multiple Regression Model

LearningObjectives
Keywords
5.1Introduction

5.1.1TheEconomicModel

5.1.2TheEconometricModel

5.1.2aTheGeneralModel

5.1.2bTheAssumptionsoftheModel
5.2EstimatingtheParametersoftheMultipleRegressionModel

5.2.1LeastSquaresEstimationProcedure

5.2.2LeastSquaresEstimatesUsingHamburgerChainData

5.2.3EstimationoftheErrorVariance2
5.3SamplingPropertiesoftheLeastSquaresEstimator

5.3.1TheVariancesandCovariancesoftheLeastSquaresEstimators

5.3.2TheDistributionoftheLeastSquaresEstimators
5.4IntervalEstimation

5.4.1IntervalEstimationforaSingleCoefficient

5.4.2IntervalEstimationforaLinearCombinationofCoefficients
5.5HypothesisTestingforaSingleCoefficient

5.5.1TestingtheSignificanceofaSingleCoefficient

5.5.2OneTailHypothesisTestingforaSingleCoefficient

5.5.2aTestingForElasticDemand

5.5.2bTestingAdvertisingEffectiveness

5.5.3HypothesisTestingforaLinearCombinationofCoefficients
5.6PolynomialEquations

5.6.1CostandProductCurves

5.6.2ExtendingtheModelforBurgerBarnSales

5.6.3TheOptimalLevelofAdvertising:InferenceforaNonlinearCombinationof
Coefficients
5.7InteractionVariables

5.7.1LogLinearModels
5.8MeasuringGoodnessofFit
5.9Exercises

5.9.1Problems

5.9.2ComputerExercises
Appendix5ADerivationofLeastSquaresEstimators
Appendix5BLargeSampleAnalysis

5B.1Consistency

5B.2AsymptoticNormality

5B.3MonteCarloSimulation

5B.4TheDeltaMethod

5B.4.1NonlinearFunctionsofaSingleParameter

5B.4.2TheDeltaMethodIllustrated

5B.4.3MonteCarloSimulationoftheDeltaMethod

5B.5TheDeltaMethodExtended

5B.5.1TheDeltaMethodIllustrated:Continued

5B.5.2MonteCarloSimulationoftheExtendedDeltaMethod

Chapter 6 Further Inference in the Multiple Regression Model

LearningObjectives
Keywords
6.1TestingJointHypotheses

6.1.1TestingtheEffectofAdvertising:theFTest

6.1.2TestingtheSignificanceoftheModel

6.1.3TheRelationshipBetweentandFTests

6.1.4MoreGeneralFTests

6.1.4aAOneTailTest

6.1.5UsingComputerSoftware
6.2TheUseofNonsampleInformation
6.3ModelSpecification
6.3.1OmittedVariables
6.3.2IrrelevantVariables
6.3.3ChoosingtheModel
6.3.4ModelSelectionCriteria

6.3.4aTheAdjustedCoefficientofDetermination

6.3.4bInformationCriteria

6.3.4cAnExample
6.3.5RESET
6.4PoorData,Collinearity,andInsignificance
6.4.1TheConsequencesofCollinearity
6.4.2AnExample

6.4.3IdentifyingandMitigatingCollinearity
6.5Prediction

6.5.1AnExample
6.6Exercises

6.6.1Problems

6.6.2ComputerExercises
Appendix6AChiSquareandFtests:MoreDetails
Appendix6BOmittedVariableBias:AProof

Chapter 7 Using Indicator Variables

LearningObjectives
Keywords
7.1IndicatorVariables

7.1.1InterceptIndicatorVariables

7.1.1aChoosingtheReferenceGroup

7.2.2SlopeIndicatorVariables
7.2.3AnExample:TheUniversityEffectonHousePrices
7.2ApplyingIndicatorVariables

7.2.1InteractionsBetweenQualitativeFactors

7.2.2QualitativeFactorswithSeveralCategories

7.2.3TestingtheEquivalenceofTwoRegressions

7.2.4ControllingforTime

7.2.4aSeasonalIndicators

7.2.4bYearIndicators

7.2.4cRegimeEffects
7.3LogLinearModels

7.3.1ARoughCalculation

7.3.2AnExactCalculation
7.4TheLinearProbabilityModel

7.4.1AMarketingExample
7.5TreatmentEffects

7.5.1TheDifferenceEstimator

7.5.2AnalysisoftheDifferenceEstimator

7.5.3ApplicationofDifferenceEstimation:ProjectSTAR

7.5.4TheDifferenceEstimatorwithAdditionalControls

7.5.4aSchoolFixedEffects

7.5.4bLinearProbabilityModelCheckofRandomAssignment

7.5.5TheDifferencesinDifferencesEstimator

7.5.6EstimatingtheEffectofaMinimumWageChange

7.5.7UsingPanelData
7.6Exercises

7.6.1Problems

7.6.2ComputerExercises
Appendix7ADetailsofLogLinearModelInterpretation
Appendix7BDerivationoftheDifferencesinDifferencesEstimator

Chapter 8 Heteroskedasticity

LearningObjectives
Keywords
8.1TheNatureofHeteroskedasticity

8.1.1ConsequencesfortheLeastSquaresEstimator8.2DetectingHeteroskedasticity


8.2.1ResidualPlots

8.2.2LagrangeMultiplierTests

8.2.2aTheWhiteTest

8.2.2bTestingtheFoodExpenditureExample

8.2.3TheGoldfeldQuandtTest

8.2.3aTheFoodExpenditureExample
8.3HeteroskedasticityConsistentStandardErrors
8.4GeneralizedLeastSquares:KnownFormofVariance

8.4.1VarianceProportionaltox

8.4.1aTransformingtheModel

8.4.1bWeightedLeastSquares

8.4.1cFoodExpenditureEstimates

8.4.2GroupedData
8.5GeneralizedLeastSquares:UnknownFormofVariance

8.5.1UsingRobustStandardErrors
8.6HeteroskedasticityintheLinearProbabilityModel

8.6.1TheMarketingExampleRevisited
8.7Exercises

8.7.1Problems

8.7.2ComputerExercises
Appendix8APropertiesoftheLeastSquaresEstimator
Appendix8BLagrangeMultiplierTestsforHeteroskedasticity

Chapter 9 Regression with Time Series Data: Stationary Variables

LearningObjectives
Keywords
9.1Introduction

9.1.1DynamicNatureofRelationships

9.1.2LeastSquaresAssumptions

9.1.2aStationarity

9.1.3AlternativePathsThroughtheChapter
9.2FiniteDistributedLags

9.2.1Assumptions

9.2.2AnExample:OkunsLaw
9.3SerialCorrelation

9.3.1SerialCorrelationinOutputGrowth

9.3.1aComputingAutocorrelations

9.3.1bTheCorrelogram

9.3.2SeriallyCorrelatedErrors

9.3.2aAPhillipsCurve
9.4OtherTestsforSeriallyCorrelatedErrors

9.4.1ALagrangeMultiplierTest

9.4.1aTestingCorrelationatLongerLags

9.4.2TheDurbinWatsonTest
9.5EstimationwithSeriallyCorrelatedErrors

9.5.1LeastSquaresEstimation
9.5.2EstimatinganAR(1)ErrorModel

9.5.2aPropertiesofanAR(1)Error

9.5.2bNonlinearLeastSquaresEstimation

9.5.2cGeneralizedLeastSquaresEstimation
9.5.3EstimatingaMoreGeneralModel

9.5.4SummaryofSection9.5andLookingAhead
9.6AutoregressiveDistributedLagModels
9.6.1ThePhillipsCurve

9.6.2OkunsLaw

9.6.3AutoregressiveModels
9.7Forecasting

9.7.1ForecastingwithanARModel

9.7.2ForecastingwithanARDLModel

9.7.3ExponentialSmoothing
9.8MultiplierAnalysis
9.9Exercises
9.9.1Problems
9.9.2ComputerExercises
Appendix9ATheDurbinWatsonTest

9A.1TheDurbinWatsonBoundsTest
Appendix9BPropertiesofanAR(1)Error
Appendix9CGeneralizedLeastSquaresEstimation

Chapter 10 Random Regressors and Moment Based Estimation

LearningObjectives
Keywords
10.1LinearRegressionwithRandomxs

10.1.1TheSmallSamplePropertiesoftheLEASTSQUARESEstimator
10.1.2LargeSamplePropertiesoftheLeastSquaresEstimator
10.1.3WhyLeastSquaresFails
10.2CasesinWhichxandeareCorrelated
10.2.1MeasurementError
10.2.2SimultaneousEquationsBias
10.2.3OmittedVariables
10.2.4LeastSquaresEstimationofaWageEquation
10.3EstimatorsBasedontheMethodofMoments
10.3.1MethodofMomentsEstimationofaPopulationMeanandVariance
10.3.2MethodofMomentsEstimationintheSimpleLinearRegressionModel
10.3.3InstrumentalVariablesEstimationintheSimpleLinearRegressionModel

10.3.3aTheImportanceofUsingStrongInstruments
10.3.4InstrumentalVariablesEstimationintheMultipleRegressionModel

10.3.4aUsingSurplusInstrumentsinSimpleRegression

10.3.4bSurplusMomentConditions
10.3.5AssessingInstrumentStrengthUsingtheFirstStageModel

10.3.5aOneInstrumentalVariable

10.3.5bMorethanOneInstrumentalVariable
10.3.6InstrumentalVariablesEstimationoftheWageEquation
10.3.7PartialCorrelation
10.3.8InstrumentalVariablesEstimationinaGeneralModel

10.3.8aAssessingInstrumentStrengthinaGeneralModel

10.3.8bHypothesisTestingwithInstrumentalVariablesEstimates

10.3.8cGoodnessofFitwithInstrumentalVariablesEstimates
10.4SpecificationTests

10.4.1TheHausmanTestforEndogeneity

10.4.2TestingInstrumentValidity

10.4.3SpecificationTestsfortheWageEquation

10.5Exercises

10.6.1Problems

10.6.2ComputerExercises
Appendix10AConditionalandIteratedExpectations

10A.1ConditionalExpectations

10A.2IteratedExpectations

10A.3RegressionModelApplications
Appendix10BTheInconsistencyofLeastSquares
Appendix10CTheConsistencyoftheIVEstimator
Appendix10DTheLogicoftheHausmanTest
Appendix10ETestingforWeakInstruments

10E.1ATestforWeakIdentification

10E.2ExamplesofTestingforWeakIdentification

10E.3TestingforWeakIdentificationConclusions
Appendix10FMonteCarloSimulation

10F.1IllustrationsUsingSimulatedData

10F.1.1TheHausmanTest

10F.1.2ATestforWeakInstruments

10F.1.3TestingtheValidityofSurplusInstruments

10F.2TheRepeatedSamplingPropertiesofIV/2SLS

Chapter 11 Simultaneous Equations Models

LearningObjectives
Keywords
11.1ASupplyandDemandModel
11.2TheReducedFormEquations
11.3TheFailureofLeastSquaresEstimation
11.4TheIdentificationProblem
11.5TwoStageLeastSquaresEstimation

11.5.1TheGeneralTwoStageLeastSquaresEstimationProcedure

11.5.2ThePropertiesoftheTwoStageLeastSquaresEstimator
11.6AnExampleofTwoStageLeastSquaresEstimation

11.6.1Identification

11.6.2TheReducedFormEquations

11.6.3TheStructuralEquations
11.7SupplyandDemandattheFultonFishMarket

11.7.1Identification

11.7.2TheReducedFormEquations

11.7.3TwoStageLeastSquaresEstimationofFishDemand
11.8Exercises

11.8.1Problems

11.8.2ComputerExercises
Appendix11AAnAlgebraicExplanationoftheFailureofLeastSquares
Appendix11B2SLSAlternatives

11B.1ThekClassofEstimators

11B.2TheLIMLEstimator

11B.2.1FullersModifiedLIML

11B.2.2AdvantagesofLIML

11B.2.3StockYogoWeakIVTestsforLIML

11B.2.3aTestingforWeakInstrumentswithLIML

11B.2.3aTestingforWeakInstrumentswithFullerModifiedLIML

11B.3MonteCarloSimulationResults

Chapter 12 Regression with Time Series Data: Nonstationary

Variables

LearningObjectives
Keywords
12.1 Stationary and Nonstationary Variables

12.1.1TheFirstOrderAutoregressiveModel

12.1.2RandomWalkModels
12.2SpuriousRegressions
12.3UnitRootTestsforStationarity

12.3.1DickeyFullerTest1(NoConstantandNoTrend)

12.3.2DickeyFullerTest2(WithConstantbutNoTrend)

12.3.3DickeyFullerTest3(WithConstantandWithTrend)

12.3.4DickeyFullerCriticalValues

12.3.5TheDickeyFullerTestingProcedures

12.3.6TheDickeyFullerTests:AnExample

12.3.7OrderofIntegration
12.4Cointegration

12.4.1AnExampleofaCointegrationTest

12.4.2TheErrorCorrectionModel
12.5RegressionWhenThereisNoCointegration

12.5.1FirstDifferenceStationary

12.5.2TrendStationary

12.5.3Summary
12.6Exercises

12.6.1Problems

12.6.2ComputerExercises

Chapter 13 Vector Error Correction and Vector Autoregressive

Models

LearningObjectives
Keywords
13.1VECandVARModels
13.2EstimatingaVectorErrorCorrectionModel

13.2.1AnExample
13.3EstimatingaVARModel
13.4ImpulseResponsesandVarianceDecompositions

13.4.1ImpulseResponseFunctions

13.4.1aTheUnivariateCase

13.4.1bTheBivariateCase

13.4.2ForecastErrorVarianceDecompositions

13.4.2aUnivariateAnalysis

13.4.2bBivariateAnalysis

13.4.2cTheGeneralCase
13.5Exercises

13.5.1Problems

13.5.2ComputerExercises
Appendix13ATheIdentificationProblem

Chapter 14 Time-Varying Volatility and ARCH Models

LearningObjectives
Keywords
14.1TheARCHModel
14.2TimeVaryingVolatility
14.3Testing,EstimatingandForecasting

14.3.1TestingforARCHEffects

14.3.2EstimatingARCHModels

14.3.3ForecastingVolatility
14.4Extensions

14.4.1TheGARCHModelGeneralizedARCH

14.4.2AllowingforanAsymmetricEffect

14.4.3GARCHinMeanandTimeVaryingRiskPremium
14.5Exercises

14.5.1Problems

14.5.2ComputerExercises

Chapter 15 Panel Data Models

LearningObjectives
Keywords
15.1AMicroeconomicPanel
15.2PooledModel

15.2.1ClusterRobustStandardErrors

15.2.2PooledLeastSquaresEstimatesofWageEquation
15.3TheFixedEffectsModel

15.3.1TheLeastSquaresDummyVariableEstimatorforSmallN

15.3.2TheFixedEffectsEstimator

15.3.2aFixedEffectsEstimatesofWageEquationfor N 10

15.3.3FixedEffectsEstimatesofWageEquationfromCompletePanel
15.4TheRandomEffectsModel

15.4.1ErrorTermAssumptions

15.4.2TestingforRandomEffects

15.4.3EstimationoftheRandomEffectsModel

15.4.4RandomEffectsestimationoftheWageEquation
15.5ComparingFixedandRandomEffectsEstimators

15.5.1EndogeneityintheRandomEffectsModel

15.5.2TheFixedEffectsEstimatorinaRandomEffectsModel

15.5.3AHausmanTest
15.6TheHausmanTaylorEstimator
15.7SetsofRegressionEquations

15.7.1GrunfeldsInvestmentData

15.7.2Estimation:EqualCoefficients,EqualErrorVariances

15.7.3Estimation:DifferentCoefficients,EqualErrorVariances

15.7.4Estimation:DifferentCoefficients,DifferentErrorVariances

15.7.5SeeminglyUnrelatedRegressions

15.7.5aSeparateorJointEstimation?

15.7.5bTestingCrossEquationHypotheses
15.8Exercises

15.8.1Problems

15.8.2ComputerExercises

Appendix15AClusterRobustStandardErrors:SomeDetails
Appendix15BEstimationofErrorComponents

Chapter 16 Qualitative and Limited Dependent Variable Models

LearningObjectives
Keywords
16.1ModelswithBinaryDependentVariables
16.1.1TheLinearProbabilityModel

16.1.2TheProbitModel

16.1.3InterpretationoftheProbitModel

16.1.4MaximumLikelihoodEstimationoftheProbitModel

16.1.5ATransportationExample

16.1.6FurtherPostestimationAnalysis
16.2TheLogitModelforBinaryChoice

16.2.1AnEmpiricalExamplefromMarketing

16.2.2WaldHypothesisTests

16.2.3LikelihoodRatioHypothesisTests
16.3MultinomialLogit

16.3.1MultinomialLogitChoiceProbabilities

16.3.2MaximumLikelihoodEstimation

16.3.3PostestimationAnalysis

16.3.4AnExample
16.4ConditionalLogit

16.4.1ConditionalLogitChoiceProbabilities

16.4.2PostestimationAnalysis

16.4.3AnExample
16.5OrderedChoiceModels

16.5.1OrdinalProbitChoiceProbabilities

16.5.2EstimationandInterpretation

16.5.3AnExample
16.6ModelsforCountData

16.6.1MaximumLikelihoodEstimation

16.6.2InterpretationinthePoissonRegressionModel

16.6.3AnExample
16.7LimitedDependentVariableModels

16.7.1CensoredData

16.7.2AMonteCarloExperiment

16.7.3MaximumLikelihoodEstimation

16.7.4TobitModelInterpretation

16.7.5AnExample

16.7.6SampleSelection

16.7.6aTheEconometricModel

16.7.6bHeckitExample:WagesofMarriedWomen
16.8Exercises
Appendix16AProbitMarginalEffects:Details

16A.1StandardErrorofMarginalEffectataGivenPoint

16A.2StandardErrorofAverageMarginalEffect

Appendix A Mathematical Tools

LearningObjectives
Keywords

A.1SomeBasics

A.1.1Numbers

A.1.2Exponents

A.1.3ScientificNotation

A.1.4LogarithmsandtheNumbere

A.1.5DecimalsandPercentages

A.1.6LogarithmsandPercentages

A.1.6aDerivationoftheApproximation

A.1.6bApproximationError
A.2LinearRelationships

A.2.1SlopesandDerivatives

A.2.2Elasticity
A.3NonlinearRelationships

A.3.1RulesforDerivatives

A.3.2ElasticityofaNonlinearRelationship

A.3.3PartialDerivatives

A.3.4TheoryofDerivatives
A.4Integrals

A.4.1ComputingtheAreaUnderaCurve

A.4.2TheDefiniteIntegral

A.4.3TheDefiniteIntegral:Details
A.5Exercises

Appendix B Probability Concepts

LearningObjectives
Keywords
B.1DiscreteRandomVariables

B.1.1ExpectedValueofaDiscreteRandomVariable

B.1.2VarianceofaDiscreteRandomVariable

B.1.3Joint,MarginalandConditionalDistributions

B.1.4ExpectationsInvolvingSeveralRandomVariables

B.1.5CovarianceandCorrelation

B.1.6ConditionalExpectations

B.1.7IteratedExpections
B.2WorkingwithContinuousRandomVariables

B.2.1ProbabilityCalculations

B.2.2PropertiesofContinuousRandomVariables

B.2.3Joint,MarginalandConditionalProbabilityDistributions

B.2.4IteratedExpectations

B.2.5DistributionsofFunctionsofRandomVariables
B.3SomeImportantProbabilityDistributions

B.3.1TheBernoulliDistribution

B.3.2TheBinomialDistribution

B.3.3ThePoissonDistribution

B.3.4TheUniformDistribution

B.3.5TheNormalDistribution

B.3.6TheChisquareDistribution

B.3.7Thetdistribution

B.3.8TheFdistribution
B.4Randomnumbers

B.4.1UniformRandomNumbers

B.5Exercises

Appendix C Review of Statistical Inference

LearningObjectives
Keywords
C.1ASampleofData
C.2AnEconometricModel
C.3EstimatingtheMeanofaPopulation

C.3.1TheExpectedValueof Y

C.3.2TheVarianceof Y

C.3.3TheSamplingDistributionof Y

C.3.4TheCentralLimitTheorem

C.3.5BestLinearUnbiasedEstimation
C.4EstimatingthePopulationVarianceandOtherMoments

C.4.1EstimatingthePopulationVariance

C.4.2EstimatingHigherMoments

C.4.3TheHipData

C.4.4UsingtheEstimates
C.5IntervalEstimation

C.5.1IntervalEstimation: 2 Known

C.5.2ASimulation

C.5.3IntervalEstimation: 2 Unknown

C.5.4ASimulation(continued)

C.5.5IntervalEstimationUsingtheHipData
C.6HypothesisTestsAboutaPopulationMean

C.6.1ComponentsofHypothesisTests

C.6.2OnetailTestswithAlternativeGreaterThan(>)

C.6.3OnetailTestswithAlternativeLessThan(<)

C.6.4TwotailTestswithAlternativeNotEqualTo()

C.6.5ExampleofaOnetailTestUsingtheHipData

C.6.6ExampleofaTwotailTestUsingHipData

C.6.7Thepvalue

C.6.8ACommentonStatingNullandAlternativeHypotheses

C.6.9TypeIandTypeIIErrors

C.6.10ARelationshipBetweenHypothesisTestingandIntervalEstimation
C.7SomeOtherUsefulTests

C.7.1TestingthePopulationVariance

C.7.2TestingtheEqualityofTwoPopulationMeans

C.7.3TestingtheRatioofTwoPopulationVariances

C.7.4TestingtheNormalityofaPopulation
C.8IntroductiontoMaximumLikelihoodEstimation(Containssomeadvancedmaterial)

C.8.1InferencewithMaximumLikelihoodEstimators

C.8.2TheVarianceoftheMaximumLikelihoodEstimator

C.8.3TheDistributionoftheSampleProportion

C.7.4AsymptoticTestProcedures

C.8.4aTheLikelihoodRatio(LR)Test

C.8.4bTheWaldTest

C.8.4cTheLagrangeMultiplier(LM)Test
C.9AlgebraicSupplements(Optional)

C.9.1DerivationofLeastSquaresEstimate

C.9.2BestLinearUnbiasedEstimation
C.10KernelDensityEstimator
C.11Exercises

Appendix D Tables

Table1CumulativeProbabilitiesfortheStandardNormalDistribution
Table2PercentilesforthetDistribution
Table3PercentilesfortheChiSquareDistribution
Table495thPercentilefortheFDistribution
Table599thPercentilefortheFDistribution