Eviews - L3 Flashcards
1
Q
What is the general formula for an F-test?
A
-use the Wald test on EViews
2
Q
how can we test for non-linearity?
A
- We firstly take a linear relationship
- We then add higher order powers (this is usually the squared values of each X variable and their cross products - all with their own β coefficient
- to the test for non-linearity we want to perform a hypothesis test under the null that all the β coefficients to the higher order powers = 0 (so the model would be the same as the original and is linear)
- if we reject the null then there is obvious some element of a non-linear relationship
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3
Q
What is the problem with testing non-linearity by adding high powers?
A
- increasing the number of explaintory variable:
- after the degrees of freedom
- the squared terms will mostly likely be highly correlated with the original regress variables –> we end up with multicollinearity which lead to very imprecise estimates of the coefficient
That why we use the Ramsey RESET test
4
Q
How does the Ramsey RESET test solve the problem faced when testing for non-linearity?
A
- It is able to test for the joint significance of the coefficients of the higher order powers without running into the problem of multicollinearity by including each of the variables separately
- In the Ramsey RESET test:
- You find the fitted values of the regression equation
- Then find the squared fitted values of the regression equation
- by adding the two together you get the original fitted equation plus Y(hat)2 which is the squared fitted values
- its coefficient is γ which captures the statistical significance of all the high order β coefficient
- Then we use either a t-test or F-test to see γ=0 or not
5
Q
How is the F-statistic related to the t-statistic?
A
- The F-statistic is the square of the t-statistic