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Unrestricted Model. Data. Theory. t-statistics. Restricted Model (excludes independent variables with low t-stats). F-statistic. Unrestricted Model. Data. Theory. Examine t-statistics. Restricted Model (excludes independent variables with t-stats below critical-t). - PowerPoint PPT Presentation
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Data TheoryUnrestrictedModel
t-statistics
Restricted Model(excludes independent
variables with low t-stats)
F-statistic
Data TheoryUnrestrictedModel
Examine t-statistics
Restricted Model(excludes independentvariables with t-stats
below critical-t)
F-statistic
F<Fcritical => do not reject H0F>Fcritical => reject H0
Finished Model
lower the critical-t
Data TheoryUnrestrictedModel
Restricted Model(excludes independentvariables with t-stats
below critical-t)
F-statistic with H0: excluded variablesdo not belong in model
F<Fcritical => do not reject H0F>Fcritical => reject H0
Finished Model
lower the critical-t
Are t-statisticscorrect? Test for•multicollinearity•heteroskedasticity