Answer to Question #273075 in Macroeconomics for Maphula

Question

Write brief notes on the following econometric terminologies:

i. Coefficient of multiple determination (R2). 

ii. Type II error.

iii. Regressors. 

iv. Disturbance term (Ui).

v. Simple linear regression model. 

vi. BLUE properties

Answer 1

i. Coefficient of multiple determination (R2).

Multiple coefficient of determination (R2) measures the proportion of change in the dependent variable that can be predicted based on a set of explanatory variables in a multiple regression equation. If the regression equation fits the data well, then R2 is large (i.e. close to 1). The opposite is also true.

ii. Type II error

Type II error is defined as the probability that the null hypothesis will hold false when it does not actually apply to the entire population. Type II errors are essentially false negatives. Type II errors can be reduced by setting more stringent criteria for rejecting the null hypothesis, but this increases the likelihood of false positives. Analysts must weigh the likelihood and impact of Type I and Type II errors.

iii. Regressors

In statistics, a regressor is a name assigned to every variable in a regression model used to predict a response variable.

iv.Disturbance term(UI)

The disturbance term is a surrogate for all those variables that are omitted from the model but that collectively affect Y.

v. Simple linear regressed model

Simple linear regression is used to model the relationship between two continuous variables. Often the goal is to predict the value of an output variable (or response) based on the values ​​of the input (or predictor) variable.

vi. BLUE Properties

BLUE summarizes OLS regression properties. These properties of OLS are so important in econometrics that OLS estimates are one of the most reliable and widely used estimates for unknown parameters. This theorem states that OLS estimates should be used, not only because they are unbiased, but also because there is minimal variance between classes of all linear and unbiased estimates.