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A.

El-Shazly
Econ 318

Analytical Exercise 1

1. Consider the linear multiple regression model

Yi = 0 + 1 X 1i + 2 X 2i + + k X ki + u i , i = 1, , n

where Y is the dependent variable, X denotes explanatory variable, is regression

coefficient, and u is error term.

a. Write this model in matrix form.

b. List the least squares assumptions in the multiple regression model and derive the
expression for the ordinary least squares (OLS) estimator of the regression coefficients in
matrix form.

2. Consider the following symmetric n n matrices

PX = X(XX) 1 X , and

M X = I n PX

= P Y , and
Y X

=M Y=M U
U X X

= X is the OLS predicted values, and U

where Y = YY
is the OLS residuals.

3. Show that the following two formulae for the F-statistic to test joint hypothesis about
regression coefficients are equivalent (assuming homoskedasticity of the conditional variance
of the errors in the linear multiple regression model)

( SSRr SSRur ) / q
F= , and
SSRur /(n k ur 1)

( Rur2 Rr2 ) / q
F=
(1 Rur2 ) /(n k ur 1)
where SSR denotes sum of squared residuals, R 2 denotes the coefficient of determination, ur
denotes unrestricted model, r denotes restricted model, and q and n k 1 are degrees of
freedom, where q is the number of restrictions on the (k + 1) regression coefficients and n is
the number of observations in the model.