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KTEE 310 FINANCIAL ECONOMETRICS THE SIMPLE REGRESSION MODEL Chap 4 – S & W Dr TU Thuy Anh Faculty of International Economics ThiNganHang.com ThiNganHang.com 1
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KTEE 310 FINANCIAL ECONOMETRICS THE SIMPLE REGRESSION MODEL Chap 4 – S & W Dr TU Thuy Anh Faculty of International Economics ThiNganHang.com ThiNganHang.com 1
Output and labor use 300 250 200 150 100 50 0 1 2 3 4ThiNganHang.com5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Labor Output ThiNganHang.com 2
Output and labor use Output vs labor use 300 250 200 150 100 50 0 80 100 120 140 160 180 200 220 The scatter diagram showsThiNganHang.comoutput q plotted against labor use l for a sample of 24 observations ThiNganHang.com 1
Output and labor use Economic theory (theory of firms) predicts An increase in labor use leads to an increase output in the SR, as long as MPL>0, other things being equal From the data: consistent with common sense the relationship looks linear Setting up: Want to know the impact of labor use on output =>Y: output, X: labor use ThiNganHang.com ThiNganHang.com 4
SIMPLE LINEAR REGRESSION MODEL Y Y b b X 1 2 b 1 X1 X2 X3 X4 X Suppose that a variableThiNganHang.comY is a linear function of another variable X, with unknown parameters b and b that we wish to estimate. 1 2 ThiNganHang.com 1
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