INTRODUCTION TO ECONOMETRICS II
ECO 306
NOUN
67 It will be confined to the slope coefficient,
, but exactly the same procedures are applied to the constant term,
. We will take the general case, where you have defined a null hypothesis that
is equal to some specific value, say
, and the alternative hypothesis is that
is not equal to this value (H
0
); you maybe attempting to attack or defend the null hypothesis as it suits your purpose. We will assume that the four Gauss–Markov conditions are satisfied.
2.2.3.6.2 Developing the Implications of a Hypothesis
If H
0
is correct, values of b
2
obtained using regression analysis in repeated samples will be distributed with mean and
( )
we will now introduce the assumption that u has a normal distribution. If this is the case, b
2
will also be normally distributed, In view of the structure of the normal distribution, most values of b
2
will lie within two standard deviations of
(if
is true.
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