Multiple Regression Model

• Notation:

– vectors and matrices
– vector of parameters vs. OLS estimator
– What are the dimensions?

• Formulae

– OLS estimator
– estimator of variance of error term
– estimator of covariance matrix of OLS estimator

• Steps to estimate a model

Econometrics, Lecture 3, 2014-03-04

Multiple Regression Model

• Example - sales of oranges vs. price of oranges

and price of apples

– formulate the model
– what are expected signs of parameters?
– estimate parameters
– interpret the results

Econometrics, Lecture 3, 2014-03-04

Multiple Regression Model

• Multiple Regression Model – interval estimation

– confidence interval for (structural) parameters
– confidence interval for variance of error term
– confidence interval for regression line
– interval forecast from regression line

• Interval forecast vs. confidence interval for regression line

Variance of forecast = variance of estimator + process

variance

How to decrease variance of forecast from regression line?

Econometrics, Lecture 3, 2014-03-04