National open university of nigeria introduction to econometrics II eco 356



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Introduction to Econometrics ECO 356 Course Guide and Course Material
Introduction to Econometrics ECO 356 Course Guide and Course Material
INTRODUCTION TO ECONOMETRICS II

ECO 306

NOUN
68 Or you could conclude that the regression result contradicts the hypothesis. You are not convinced by the explanation in (1) because the probability is so small and you think that a much more likely explanation is that
is not really equal to 1. In other words, you adopt the alternative hypothesis H instead.
We can summarize this decision rule mathematically by saying that we will reject the null hypothesis if


…[2.43] wherez is the number of standard deviations between the regression estimate and the hypothetical value of

:





(
)
…[2.44] The null hypothesis will not be rejected if This condition can be expressedregardingb2 and
by substituting for z from



(
)



…[2.45] Multiplying through by the standard deviation of b
2
, one obtains
(
)


(
)
…[2.46] from which one obtains

(
)


(
)

…[2.47]
[2.47] gives the set of values of
which will not lead to the rejection of a specific null hypothesis

. It is known as the acceptance regionfor

, at the 5 percent significance level.

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