Basic econometric models Flashcards
Whats the equation for a basic econometric model?
y=a+BX+u
a = alpha and B = Beta
Why can we not find exact estimates of the relationship between the unknown parameters?
Because of the random error
What is the random error in the relationship?
u
In the DGP equation, Y and u are:
Random vairables
In the DGP equation, what are alpha and Beta?
fixed (but unknown) population parameters
What does Y = a + BX + u define?
The data generation process (DGP)
What are estimates of Alpha and Beta based on sample data?
Random variables
What does the distribution of a and B depend on?
distribution of the random disturbances u
What is cross section data?
Observing data for different agents
What is time series data?
Observing data for one agent at different points in time
Whats an example of cross section data?
GDP across different countries
Whats an example of time series data?
UK GDP across a number of years
What is a random experiment?
An experiment whose outcome cannot be predicted with certainty
What is a random variable?
A quantity who’s value depends on the outcome of a set of possible random events
What does a probability distribution specify?
The probability that the value of the variable falls within given intervals
