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Economics 310

Economics 310. Lecture 7 Testing Linear Restrictions. Single Linear Restriction. Cigarette Demand Example. VARIABLE ESTIMATED STANDARD T-RATIO PARTIAL STANDARDIZED ELASTICITY NAME COEFFICIENT ERROR 24 DF P-VALUE CORR. COEFFICIENT AT MEANS

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Economics 310

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  1. Economics 310 Lecture 7 Testing Linear Restrictions

  2. Single Linear Restriction

  3. Cigarette Demand Example VARIABLE ESTIMATED STANDARD T-RATIO PARTIAL STANDARDIZED ELASTICITY NAME COEFFICIENT ERROR 24 DF P-VALUE CORR. COEFFICIENT AT MEANS LNY 0.25768 0.1303 1.977 0.060 0.374 0.5930 2.7090 LNP -0.21669 0.1070 -2.024 0.054-0.382 -0.4693 -0.1927 LNQLAG 0.62464 0.1541 4.053 0.000 0.637 0.6500 0.6215 CONSTANT -1.6892 0.9206 -1.835 0.079-0.351 0.0000 -2.1377 VARIANCE-COVARIANCE MATRIX OF COEFFICIENTS LNY 0.16986E-01 LNP -0.12665E-01 0.11459E-01 LNQLAG -0.15970E-01 0.10230E-01 0.23747E-01 CONSTANT -0.11965 0.89111E-01 0.10681 0.84744 LNY LNP LNQLAG CONSTANT

  4. Test Homogeneity

  5. Testing Multiple Linear Restrictions

  6. Selecting Models • Economic Theory and logic • Use of t- and F-tests • Coefficient of Determination • Models with different dependent variables • Models with different number regressors • Models without constant term • Adjusted Coefficient of Determination • Akaike Information Criterion • J-test for non-nest hypothesis • Ramsey Reset for non-linearity

  7. Selecting Models

  8. Ramsey Reset Test • Test functional form of model • Regress Y on independent variables and square and cubic of predictions of Y from linear model. • TV Ad yield example

  9. J-Test • Test for best model between 2 non-nested models. • J-Test Example

  10. Testing linear versus log-linear

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