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The document discusses the five assumptions underlying the method of least squares, also known as the Gauss-Markov assumptions. The assumptions are: 1) the dependent variable Y is linearly related to the independent variable X and error term, 2) random sampling is used to collect the sample data, 3) the values of the explanatory variable X in the sample are not all the same, 4) the error term has an expected value of zero no matter the value of X, and 5) the error term has the same variance regardless of the value of X.
The document discusses the five assumptions underlying the method of least squares, also known as the Gauss-Markov assumptions. The assumptions are: 1) the dependent variable Y is linearly related to the independent variable X and error term, 2) random sampling is used to collect the sample data, 3) the values of the explanatory variable X in the sample are not all the same, 4) the error term has an expected value of zero no matter the value of X, and 5) the error term has the same variance regardless of the value of X.
The document discusses the five assumptions underlying the method of least squares, also known as the Gauss-Markov assumptions. The assumptions are: 1) the dependent variable Y is linearly related to the independent variable X and error term, 2) random sampling is used to collect the sample data, 3) the values of the explanatory variable X in the sample are not all the same, 4) the error term has an expected value of zero no matter the value of X, and 5) the error term has the same variance regardless of the value of X.
Chapter two ASSUMPTIONS UNDERLYING THE METHOD OF LEAST SQUARES. Also Know as Gauss Markow assumption
Assumption 1: Simple Linear Regression Model. In the ppln model, the dependent variable Y, is related to the independent variable X and the error term. Y = 0 + 1 x + u
Assumption 2: Random sampling We have random sampling of size n, ((x,y): 1,2), following the population model equation in assumption one. Assumption 3: Sampl variation in the explanatory variable. The sample outcome on X, namely, (X, i= 1,2.n) are not all the same value. Assumption 4: Zero conditional mean. The error term has an expected value of zero given any value of the explanatory variable. E(U/X) = 0 Assumption 5: Homoskedasticity. The error U has same variance given any value of the explanatory variable. Var (U/X): 2