Basic Concepts Flashcards
Which are the two goals of econometrics?
- Use data to ESTIMATE the unkown model parameters
2. Use data to TEST wheter a tehory os correct (hypothesis testing)
How do we denote the/an unkown model parameter?
Denote with β
What are the four Acknowledgements of an econometric model?
- The ecenometric model will never be exact
- Add a random error term (ε) to the economic model
- Having certain assumptions on ε are very important.
- Linear rgression line
How do we denote the random error term?
Denoted by ε
What is a population?
A population is a set of similar items such as individuals in Sweden
What is a sample?
A sample is a set of data selected from a population by some defined PROCEDURE
What is a random sample?
How do we denote the population?
How do we denote the random sample?
What is a sample point and how do we denote it?
A sample is random id each item in the population has the same probability to be selected in sample.
Population: N
Random sample: 1/N
Sample point: each element of the sample is called a sample point, denoted i
The size of the sample is Denoted: n (number of sample points)
If we have a sample point i, how will we denote the measurement of the sample point
denoted xi (litet i)
What does the sample mean measure?
It measures the average of a sample. That meaning all samplepoints combines anf then divided by n
What does the sample variance measure?
Sample variance measures the spread of values between sample points.
Low numbers-> small differences between in the values deviation from the sample mean
High numbers-> large differences between the values deviation from the sample mean.
What does the sample covariance measure intiutivly?
Waht is usually the case for smaple covariance?
Given that we can make two measurments from sample piont i and denote them x1 and y1.
The sample covariance will be a product between the deviation for x respectivly for y. Then divided by n-1
It tends to be that if the deviation of x if positive/negative, the y deviation will take the same form. Meaning that when we take the product of the deviations it ususally becomes positive.
What does the sample correlation measure intuitivly?
It is a ratio. It is the smaple covariance divided by the product of sample standard deviation for x and y
What is the OLS formula?
y=b1 + b2*x
What does a high vs low RSS mean?
RSS = the part of the variation that we cannot explain
High RSS: bad
Low RSS: good
What it the formula for Rsqrd?
ESS/TSS = 1 - RSS/TSS
