Unit 2

Question 1

What is the deterministic and what is the stochastic/random part of a linear regression model?

Answer 1

Deterministic is Xβ, random is ε

Question 2

What does the notation of vector y hat mean?

Answer 2

It represents fitted values; the values we’d obtain for y if β estimates were equally to real β (no error terms)

Question 3

What is the scalar transpose device?

Answer 3

If a matrix expression comes out to a scalar (1x1 matrix) then it must equal it’s own transpose

Question 4

Starting from scratch, find the OLS estimator β^

Answer 4

Now