Construction of confidence interval

by
Tara Shankar Shaw
The regression model

If we assume that
We know that the estimated

i.e.

and its distribution is

Then

and if

is unknown we substitute the unbiased estimator of

i.e.

and we get the test statistics

Now we are testing the following hypothesis

Under Null hypothesis (i.e. assuming Null hypothesis

is true) the test statistics is

If we are testing at 5% level of significance then the t-value is

(Note: we always construct confidence interval on
estimated value

, then the confidence interval of

, i.e. the assumed null hypothesis, not on the

Thus the upper and lower confidence interval

The above confidence interval are created assuming the Null Hypothesis holds, if the Null hypothesis do
not holds then

is not true and

will like outside the confidence interval.