CSE

Econometrics: Classical Assumption 3 – There is no correlation between any of the explanatory variables and the error term.

There cannot be any correlation between the explanatory variables present within a given equation and the error term. If it were the case that the error term and the explanatory variables were in fact correlated, what you would find happening is that some of the variation that occurs in the dependent or Y variable will …

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Econometrics: Classical Assumption 2 – The error term has a zero population mean.

When the intercept term is present in any given regression equation, it forces the average of the error term to be equal to zero. This occurs because the intercept, when included, will account for the fixed portion change of the dependent variable and the explanatory variables will account for the non-fixed portion. Therefore, the error term …

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Econometrics: Classical Assumption 1 – The model is linear in the slope coefficients and error term.

In this assumption, it is assumed that the model is linear in the slope coefficients and the associated error term in the equation. What this means is that the slope in a given linear equation is a number that it is neither squared or it is not a reciprocal for example. It is a number that …

Econometrics: Classical Assumption 1 – The model is linear in the slope coefficients and error term. Read More »

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