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© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Example: A simple wage equation
Measures the change in hourly wage given another year of education, holding all other factors fixed
Labor force experience, tenure with current employer, work ethic, intelligence …
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Simple Regression Model
Example: Soybean yield and fertilizer
Measures the effect of fertilizer on yield, holding all other factors fixed
Rainfall, land quality, presence of parasites, …
Interpretation only correct if all other things remain equal when the independent variable is increased by one unit
The simple linear regression model is rarely applicable in practice but its discussion is useful for pedagogical reasons
e.g. intelligence …
The conditional mean independence assumption is unlikely to hold because individuals with more education will also be more intelligent on average.
The Simple Regression Model
Chapter 2
Wooldridge: Introductory Econometrics: A Modern Approach, 5e
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Simple Regression Model
Population regression function (PFR) The conditional mean independence assumption implies that
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Simple Regression Model
Definition of the simple linear regression model
„Explains variable in terms of variable “
Intercept
Байду номын сангаас
Slope parameter
Dependent variable, explained variable, response variable,…
The Simple Regression Model
When is there a causal interpretation? Conditional mean independence assumption
Example: wage equation
The explanatory variable must not contain information about the mean of the unobserved factors
Independent variable, explanatory variable, regressor,…
Error term, disturbance, unobservables,…
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
The Simple Regression Model
Interpretation of the simple linear regression model „Studies how varies with changes in :“
as long as
By how much does the dependent variable change if the independent variable is increased by one unit?
