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The Simple Regression Model (Ordinary Least Squares (Properties of OLS…
The Simple Regression Model
Explains the relationship between two variables
correlation coefficient
y = dependent variable
x = independent variable
u = error term
B1 = slope parameter
B0 = intercept parameter
PRF x SRF
how to allow for other factors to affect y?
how can we be sure we are capturing a ceteris paribus relationship?
what is the functional relationship between y and x?
pop regression function
E(y|x) = B0 + B1x
systematic part = part of y explained by x
unsystematic part = part of y explained by u
O
rdinary
L
east
S
quares
Properties of OLS on
any sample of Data
Fitted Values and Residuals
sample average of residuals = 0
R^2 = SSE/SST = 1 - SSR/SST
R^2 is the coefficient of determination
The Effects of
Changing Units of
Measurement on
OLS Statistics
