Beruflich Dokumente
Kultur Dokumente
Huize Zhang
27 May 2019
A little bit about me
I Honours | Econometrics
I Summer Research for Tennis Australia
I Worked in Predictive Analytics Group
What we do in ETC2410?
I Mechanism
I Assumptions
I Properties
I Inference based on OLS
Mechanism
y = Xβ + u
Minimising the error:
X0 ^
u=0
β^ = (X0 X)−1 X0 y
Assumptions of OLS
E (u|X) = 0
I Homoskadesticity
Var (u|X) = σ 2 In
Properties (under assumptions)
^ =β
E (β)
E (β̂) = β
β̂j − βj
∼ tn−k−1
se(βj )
β̂j − βj
T = ∼ Tn−k−1
se(βj )
y = β0 + β1 x1 + β2 x2 + β3 x3 + β4 x4
R 2 /k
F = ∼Fk,n−k−1
(1 − R 2 )/(n − k − 1)
y = β0 + β1 x1 + β2 x2 + β3 x3 + β4 x4 + u
H0 : β1 = β2
transform to
H0 : δ = 0 where δ = β1 − β2
since δ = β1 − β2 , β1 = δ + β2 ,
the origin y = β0 + β1 x1 + β2 x2 + β3 x3 + β4 x4 + u becomes
y = β0 + (δ + β2 )x1 + β2 x2 + β3 x3 + β4 x4 + u
y = β0 + δx1 + β2 (x2 + x1 ) + β3 x3 + β4 x4 + u
where q
se(ê) = σ̂ 2 + [se(ŷ )]2
Prediction Interval
I Log transformation
Form change of x change of y
log-level(y-x) unit change percentage change
level-log(y-x) percentage change unit change
log-log percentage change percentage change
Always remeber: “controlling for all other variables”
I Quadratic term
I what’s the turning point? (find the maximum or minimum)
Model Selection Criteria
I Gender dummy
I Name the dummy as the category which has value of 1: female
is a good name; gender is a bad one
I Simple dummy interpretation: bring in the content!
I controlling for all other variables, females on average earn less
than their male counterpart by [whatever]% - don’t say a unit
increase in the female dummy!!!
Dummy Variables: interaction term
When female = 0
lwage = β0 + β2 educ
when female = 1
Definition of HTSK
I The variance of the errors is not equal to each other
I In another word, the diagonal elements of the
variance-covariance matrix is not all the same
Consequence
I still unbiased
I no longer ‘BLUE’, thus no longer efficient - OLS SE is incorrect
I t/F tests are inaccurate
Detection: BP test or White test
1
Var (ui |xi1 , xi2 , ...xik ) = σ 2
hi
ui
Var ( √ |xi1 , xi2 , ...xik ) = σ 2
hi
y 1 1 1 1 1
√ = √ β0 + √ β1 xi1 + √ β2 xi2 + ... + √ βk xik + √ ui
hi hi hi hi hi hi
and your error will be homoskedastic :)
Serial Correlation
Definition
I Errors in different periods are correlated with each other
Consequence
I Affect the variance-covariance matrix: off-diagonal elements
are not all zeros, which implies that
Var (u|X) 6= σ 2 In
H0 : ρ1 = ρ2 = ρ3 = 0
I Step 6: Rejection rule: reject the null if BGcalc > BGcrit and
conclude there’s serial correlation in the origin regression. If no
adjustment is made, the estimators will be unbiased but not
efficient.
Correction
AR(p) model
AR(1) model
yt = φ0 + φ1 yt−1 + ut
Stationary restriction
| φ1 |≤ 1
yt = φ0 + φ1 yt−1 + ut
= φ0 + φ1 (φ0 + φ1 yt−2 + ut ) + ut
= φ0 (1 + φ1 ) + φ21 yt−2 + ut (1 + φ1 )
= φ0 (1 + φ1 ) + φ21 (φ0 + φ1 yt−3 + ut ) + ut (1 + φ1 )
= · · · + φ31 yt−3 + · · ·
= · · · + φp1 yt−p + · · ·
Deduction of E (yt )
Given that yt is a stationary series and ut is white noise, deduct the
expression for E (yt ), Var (yt ) and Cov (yt , yt−j )
φ0
E (yt ) =
1 − φ1
because
E (yt ) = E (φ0 ) + E (φ1 yt−1 ) + E (ut )
E (yt ) = φ0 + φ1 E (yt−1 ) + E (ut )
because
σ2
Var (yt ) =
1 − φ21
Unit root - what if our series is not stationary: random
walk
yt = yt−1 + ut
Assuming ut is still WN, then a random walk series has property that
E (yt ) = 0
Var (yt ) = tσ 2
Theory w.r.t OLS
1 Pn
I WLLN: As n goes to infinity, n i yi will converge to E (y ),
which is ȳ in OLS
I CLT √
n(Y¯n − µ) d
→ N(0, 1)
σ
This is an exact result: CLT is the theorem for infinity n
If n is large but finite number then we can move around and have
the result
σ 2
asy
Y¯n ∼ N(µ, )
n
Theory w.r.t OLS
I Consistency: plim(θ̂) = θ
I WLLN:
I Jensen’s Inequality
I Slutsky theorem (CMT)
I Asymptotic Normality: θ̂ is asymptotically distributed as
normal with mean of θ0 and a variance V
I Taylor’s theorem
I Consistency
I CLT
I CMT
I WLLN
I Efficiency or asymptotic efficiency
I If the variance in the (asy) normal distribution hits the (fisher
information per observation) CRLB, then it is (asy) efficient