Econometrics - The simple regression model - Multiple regression
4 important questions on Econometrics - The simple regression model - Multiple regression
How to interpret the homoskedasticity assumption?
What is omitted variable bias?
score = b0 + b1*class size + u
corr(u,funding) =/= 0
crr(funding, class size) =/= 0
because of that
corr(u,class size) =/= 0
When can you omit a variable? so not commit omitted variable bias?
- corr(x2,y)=0
- corr(x1,x2)=0
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5 steps for a succesful model
- Thorough literature search, understand the causal mechanisms
- See which variables appear correlated with dependent variable of interest
- Limit attention to one or two most significant predictor variables
- Determine whether to ignore or include variables
- Validate results
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