Statistical Inference

Dr.
TU Thuy Anh
Faculty of International Economics
1
KTEE 310 FINANCIAL ECONOMETRICS
STATISTICAL INFERENCE
Chap 5 & 7 S & W

Model: Y = |
1
+ |
2
X + u

Null hypothesis:

Alternative hypothesis:

TESTING A HYPOTHESIS RELATING TO A REGRESSION
COEFFICIENT
0
2 2 0
: | | = H
0
2 2 1
: | | = H
We will suppose that we have the standard simple regression model and that
we wish to test the hypothesis H
0
that the slope coefficient is equal to some
value |
2
0
. We test it against the alternative hypothesis H
1
, which is simply
that |
2
is not equal to |
2
0

Model: Y = |
1
+ |
2
X + u

Null hypothesis:


Example model: p = |
1
+ |
2
w + u

Null hypothesis:


COEFFICIENT
As an illustration, we will consider a model relating p, the rate of growth of
prices and w, the rate of growth of wages.
We will test the hypothesis that the rate of price inflation is equal to the rate
of wage inflation. The null hypothesis is therefore H
0
: |
2
= 1.0.
0
2 2 0
: | | = H
0 . 1 :
2 0
= | H
0 . 1 :
2 1
= | H
0
2 2 1
: | | = H
We will assume that we know the standard deviation and that it is equal to
0.1. This is a very unrealistic assumption. In practice you have to estimate
it.

COEFFICIENT
1.0 1.1 0.9 0.8 0.7 0.6 1.2 1.3 1.4
probability
density
function of b
2

b
2

Distribution of b
2
under the null
hypothesis H
0
: |
2
=1.0 is true
(standard deviation equals 0.1 taken
as given)

COEFFICIENT
Suppose that we have a sample of data for the price inflation/wage inflation
model and the estimate of the slope coefficient, b
2
, is 0.9. Would this be
evidence against the null hypothesis |
2
= 1.0?
And what if b
2
=1.4?
1.0 1.1 0.9 0.8 0.7 0.6 1.2 1.3 1.4
probability
density
function of b
2

b
2

Distribution of b
2
under the null
hypothesis H
0
: |
2
=1.0 is true
(standard deviation equals 0.1 taken
as given)

COEFFICIENT
The usual procedure for making decisions is to reject the null hypothesis if it
implies that the probability of getting such an extreme estimate is less than
some (small) probability p.
probability
density
function of b
2

b
2

Distribution of b
2
under the null
hypothesis H
0
: |
2
=|
2
is true
(standard deviation taken as given)
0
|
2

|
2
+sd
|
2
+2sd
|
2
-sd |
2
-2sd
|
2
+3sd
|
2
-3sd |
2
-4sd
|
2
+4sd
0
0
0
0 0
0
0 0 0

COEFFICIENT
For example, we might choose to reject the null hypothesis if it implies that
the probability of getting such an extreme estimate is less than 0.05 (5%).
According to this decision rule, we would reject the null hypothesis if the
estimate fell in the upper or lower 2.5% tails.

probability
density
function of b
2

b
2

Distribution of b
2
under the null
hypothesis H
0
: |
2
=|
2
is true
(standard deviation taken as given)
0
|
2

|
2
+sd
|
2
+2sd
|
2
-sd |
2
-2sd
|
2
+3sd
|
2
-3sd |
2
-4sd
|
2
+4sd
0
0
0
0 0
0
0 0 0
2.5% 2.5%

COEFFICIENT
The 2.5% tails of a normal distribution always begin 1.96 standard
deviations from its mean. Thus we would reject H
0
if the estimate were 1.96
standard deviations (or more) above or below the hypothetical mean.
Or if the difference, expressed in terms of standard deviations, were more
than 1.96 in absolute terms (positive or negative).

2.5%
2.5%
probability
density
function of b
2

b
2
|
2
+1.96sd
|
2
-1.96sd |
2

0
|
2
-sd |
2
+sd
0 0 0 0
Decision rule (5% significance level):
reject
(1) if (2) if

0
2 2 0
| | = : H
s.d. 96 . 1
0
2 2
+ > | b s.d. 96 . 1
0
2 2
< | b
96 . 1 s.d. / ) (
0
2 2
> | b
96 . 1 s.d. / ) (
0
2 2
< | b

COEFFICIENT
2.5% 2.5%
Decision rule (5% significance level):
reject
(1) if (2) if
(1) if z > 1.96 (2) if z < -1.96
s.d.
0
2 2
|
=
b
z
probability
density
function of b
2

b
2

|
2
+1.96sd |
2
-1.96sd
|
2

0
|
2
-sd |
2
+sd
0
0
0
0
s.d. 96 . 1
0
2 2
+ > | b s.d. 96 . 1
0
2 2
< | b
0
2 2 0
| | = : H
The range of values of b
2
that do not lead to the rejection of the null
hypothesis is known as the acceptance region.
Type II error (the probability of accepting the false hypothesis)
The limiting values of z for the acceptance region are 1.96 and -1.96 (for a
5% significance test).

acceptance region for b
2
:
s.d. 96 . 1 s.d. 96 . 1
0
2 2
0
2
+ s s | | b
96 . 1 96 . 1 s s z

COEFFICIENT
2.5% 2.5%
probability density
function of b
2

b
2

|
2
+1.96sd |
2
-1.96sd
|
2

0
|
2
-sd |
2
+sd
0
0
0
0
2

reject
0
2 2 0
| | = : H reject
0
2 2 0
| | = : H
Rejection of the null hypothesis when it is in fact true is described as a Type I
error.
With the present test, if the null hypothesis is true, a Type I error will occur
5% of the time because 5% of the time we will get estimates in the upper or
lower 2.5% tails. The significance level of a test is defined to be the
probability of making a Type I error if the null hypothesis is true.

Type I error: rejection of H
0
when it is in fact true.
Probability of Type I error: in this case, 5%
Significance level of the test is 5%.

COEFFICIENT
2.5% 2.5%
probability density
function of b
2

b
2

|
2
+1.96sd |
2
-1.96sd
|
2

0
|
2
-sd |
2
+sd
0
0
0
0
2

reject
0
2 2 0
| | = : H reject
0
2 2 0
| | = : H
We could change the decision rule to reject the null hypothesis if it implies that the
probability of getting the sample estimate is less than 0.01 (1%).
The rejection region now becomes the upper and lower 0.5% tails

5% level
1% level

t TEST OF A HYPOTHESIS RELATING TO A REGRESSION COEFFICIENT
We replace the standard deviation in its denominator with the standard
error, the test statistic has a t distribution instead of a normal distribution.
We look up the critical value of t and if the t statistic is greater than it,
positive or negative, we reject the null hypothesis. If it is not, we do not.
s.d. of b
2
known
discrepancy between
hypothetical value and sample
estimate, in terms of s.d.:
s.d.
0
2 2
|
=
b
z
5% significance test:
reject H
0
: |
2
= |
2
if
z > 1.96 or z < 1.96
s.d. of b
2
not known
discrepancy between
hypothetical value and sample
estimate, in terms of s.e.:
s.e.
0
2 2
|
=
b
t
5% significance test:
reject H
0
: |
2
= |
2
if
t > t
crit
or t < t
crit
0 0

A graph of a t distribution with 10 degrees of freedom. When the number of
degrees of freedom is large, the t distribution looks very much like a normal
distribution
0
0.1
0.2
0.3
0.4
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6
Normal (0,1)
t, 10 d.f.

t distribution has longer tails than the normal distribution, the difference
being the greater, the smaller the number of degrees of freedom
This means that the rejection regions have to start more standard deviations
away from zero for a t distribution than for a normal distribution.
normal
0
0.1
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6
t, 10 d.f.
t, 5 d.f.

The 2.5% tail of a t distribution with 10 degrees of freedom starts 2.33
standard deviations from its mean.
That for a t distribution with 5 degrees of freedom starts 2.57 standard
deviations from its mean.
normal
0
0.1
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6
-2.57
t, 10 d.f.
t, 5 d.f.
-2.33
-1.96
For this reason we need to refer to a table of critical values of t when
performing significance tests on the coefficients of a regression equation.
t Distribution: Critical values of t

Degrees of Two-sided test 10% 5% 2% 1% 0.2% 0.1%
freedom One-sided test 5% 2.5% 1% 0.5% 0.1% 0.05%

1 6.314 12.706 31.821 63.657 318.31 636.62
2 2.920 4.303 6.965 9.925 22.327 31.598
3 2.353 3.182 4.541 5.841 10.214 12.924
4 2.132 2.776 3.747 4.604 7.173 8.610
5 2.015 2.571 3.365 4.032 5.893 6.869

18 1.734 2.101 2.552 2.878 3.610 3.922
19 1.729 2.093 2.539 2.861 3.579 3.883
20 1.725 2.086 2.528 2.845 3.552 3.850

600 1.647 1.964 2.333 2.584 3.104 3.307
1.645 1.960 2.326 2.576 3.090 3.291
Number of degrees of freedom in a regression
= number of observations number of parameters estimated.

Example:
) 10 . 0 ( ) 05 . 0 (
82 . 0 21 . 1
w p + =
. 80 . 1
10 . 0
00 . 1 82 . 0
) ( s.e.
2
0
2 2
=
=
b
b
t
|
18 freedom of degrees ; 20 = = n
101 . 2
% 5 , crit
= t
1 : ; 1 :
2 0 2 0
= = | | H H
u w p + + =
2 1
| |
The critical value of t with 18 degrees of freedom is 2.101 at the 5% level.
The absolute value of the t statistic is less than this, so we do not reject the
null hypothesis.
18
Model 3: OLS, using observations 1899-1922 (T = 24)
Dependent variable: q

coefficient std. error t-ratio p-value
--------------------------------------------------------
const -4,85518 14,5403 -0,3339 0,7418
l 0,916609 0,149560 6,129 4,42e-06 ***
k 0,158596 0,0416823 3,805 0,0010 ***

Mean dependent var 165,9167 S.D. dependent var 43,75318
Sum squared resid 2534,226 S.E. of regression 10,98533
R-squared 0,942443 Adjusted R-squared 0,936961
F(2, 21) 171,9278 P-value(F) 9,57e-14
Log-likelihood -89,96960 Akaike criterion 185,9392
Schwarz criterion 189,4734 Hannan-Quinn 186,8768
rho 0,098491 Durbin-Watson 1,535082
EXAMPLE
19

-----------------------------------------------------------
const -10,7774 16,4164 -0,6565 0,5190
l 0,822744 0,190860 4,311 0,0003 ***
k 0,312205 0,195927 1,593 0,1267
sq_k -0,000249224 0,000310481 -0,8027 0,4316

F(3, 20) 112,8920 P-value(F) 1,05e-12
rho -0,083426 Durbin-Watson 1,737618
EXAMPLE

Hypothesis testing using p-value

Step 1: Calculate t
ob
=

Step 2: Calculate p-value = P (|t| > |t
ob
|)

Step 3: Gor a given :
Two-tail test: p-value < reject H
0
One-tail test: p-value/2 < : reject H
0

20
)
i
i i
se |
| |
21

--------------------------------------------------------
const -4,85518 14,5403 -0,3339 0,7418
l 0,916609 0,149560 6,129 4,42e-06 ***
k 0,158596 0,0416823 3,805 0,0010 ***

F(2, 21) 171,9278 P-value(F) 9,57e-14
EXAMPLE
22

-----------------------------------------------------------
const -10,7774 16,4164 -0,6565 0,5190
l 0,822744 0,190860 4,311 0,0003 ***
k 0,312205 0,195927 1,593 0,1267
sq_k -0,000249224 0,000310481 -0,8027 0,4316

F(3, 20) 112,8920 P-value(F) 1,05e-12
rho -0,083426 Durbin-Watson 1,737618
EXAMPLE
probability density function of b
2

(1) conditional on |
2
= |
2
being true
(2) conditional on |
2
= |
2
being true

CONFIDENCE INTERVALS
b
2

|
2
|
2
-sd
|
2
-1.96sd
|
2
+sd
min min min min
min

max

The diagram shows the limiting values of the hypothetical values of |
2
, together with
their associated probability distributions for b
2
.
|
2

|
2
+ 1.96sd |
2
- sd |
2
+
sd
max max max max
(1) (2)

b
2

|
2
|
2
-sd |
2
-1.96sd |
2
+sd
min min min min
|
2
|
2
+ 1.96sd |
2
- sd |
2
+sd
max max max max
(1) (2)
Any hypothesis lying in the interval from |
2
min
to |
2
max
would be compatible with the
sample estimate (not be rejected by it). We call this interval the 95% confidence
interval.
reject any |
2
> |
2
= b
2
+ 1.96 sd
reject any |
2
< |
2
= b
2
- 1.96 sd
95% confidence interval:
b
2
- 1.96 sd < |
2
< b
2
+ 1.96 sd

max

min


Standard deviation known
95% confidence interval
b
2
- 1.96 sd < |
2
< b
2
+ 1.96 sd
b
2
- 2.58 sd < |
2
< b
2
+ 2.58 sd

Standard deviation estimated by standard error
b
2
- t
crit (5%)
se < |
2
< b
2
+ t
crit (5%)
se
b
2
- t
crit (1%)
se < |
2
< b
2
+ t
crit (1%)
se

26
TESTING FOR A SINGLE
RESTRICTION
H
0
H
1
Reject H
0
if

|
j
= |
*
|
j
|
*
t
ob
|>t
n-k;

/2

|
j
|
*
|
j
< |
*
t
ob
<-t
n-k;

|
j
|
*
|
j
> |
*
t
ob
>t
n-k;

) (
*
ob
j
j
b se
b
t
|
=
27
TESTING BETWEEN 2
COEFFCIENTs
H
0
H
1
Reject H
0
if

|
j
= |
i
|
j
|
i
t
ob
|>t
n-k;

/2

|
j
|
i
|
j
< |
i
t
ob
<-t
n-k;

|
j
|
i
|
j
> |
i
t
ob
>t
n-k;

i j i j
b b b
i j
i j
i j
b b
b b se
b b
t
,
2

) (
2 2
ob
o o o +

=
=
28

--------------------------------------------------------
const -4,85518 14,5403 -0,3339 0,7418
l 0,916609 0,149560 6,129 4,42e-06 ***
k 0,158596 0,0416823 3,805 0,0010 ***

Covariance matrix of regression coefficients:

const k l
211,422 0,371062 -2,01166 const
0,00173742 -0,00533574 k
0,0223683 l
MULTIPLE REGRESSION WITH TWO EXPLANATORY VARIABLES:
EXAMPLE
29
TESTING FOR MORE THAN ONE RESTRICTIONS
- F TEST

If |
2
= |
3
=..= |
K
= 0?

if |
2
= |
4
=0

meaning: all variables
in the model do not
affect y
model is insignificant
R
2
=0

Meaning: X
2
and X
4

should not be included

30
SIGNIFICANCE OF MODEL F
TEST
If the model is significant?
H
0
: R
2
=0; H
1
: R
2
>0

If F
ob
> F
(k-1,n-k) reject H
0

2
2
/ ( 1)
(1 ) / ( )
ob
R k
F
R n k
=

31

---------------------------------------------------------
const -38,7267 14,5994 -2,653 0,0145 **
l 1,40367 0,0982155 14,29 1,29e-012 ***

F(1, 22) 204,2536 P-value(F) 1,29e-12
EXAMPLE
32

--------------------------------------------------------
const -4,85518 14,5403 -0,3339 0,7418
l 0,916609 0,149560 6,129 4,42e-06 ***
k 0,158596 0,0416823 3,805 0,0010 ***

F(2, 21) 171,9278 P-value(F) 9,57e-14
EXAMPLE
33
F-TEST
Y = |
1
+ |
2
X
2
+..+ |
5
X
5
+ u (1)
if |
2
= |
4
=0?
H
0
: |
2
= |
4
=0; H
1
: at least one of them is nonzero
Step1: run unrestricted model (1) => R
2
(1)
Step 2: run: restricted model: Y = |
1
+ |
3
X
3
+ |
5
X
5
+ u (2)
=> R
2
(2)

If F
ob
> F

(m,n-k)=> reject H
0
Example: H
0
: |
2
=0 :
F
ob
=
14,477 > F
5%
(1,21)=4.32 => reject H
0

2 2
2
( (1) (2)) /
(1 (1)) / ( )
ob
R R m
F
R n k

Statistical Inference

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Statistical Inference

Hochgeladen von

Copyright:

Verfügbare Formate

Dr.

t Distribution: Critical values of t

Das könnte Ihnen auch gefallen