Solved

In the Multiple Regression Model with Two Regressors, the Formula

Question 22

Essay

In the multiple regression model with two regressors, the formula for the slope of the first
explanatory variable is β^1=i=1nyix1ii=1nx2i2i=1nyix2ii=1nx1ix2ii=1nx1i2i=1nx2i2(i=1nx1ix2i)2\hat { \beta } _ { 1 } = \frac { \sum _ { i = 1 } ^ { n } y _ { i } x _ { 1 i } \sum _ { i = 1 } ^ { n } x _ { 2 i } ^ { 2 } - \sum _ { i = 1 } ^ { n } y _ { i } x _ { 2 i } \sum _ { i = 1 } ^ { n } x _ { 1 i } x _ { 2 i } } { \sum _ { i = 1 } ^ { n } x _ { 1 i } ^ { 2 } \sum _ { i = 1 } ^ { n } x _ { 2 i } ^ { 2 } - \left( \sum _ { i = 1 } ^ { n } x _ { 1 i } x _ { 2 i } \right) ^ { 2 } }
(small letters refer to deviations from means as in zi=ZiZˉz _ { i } = Z _ { i } - \bar { Z } ). An alternative way to derive the OLS estimator is given through the following three step
procedure. Step 1: regress YY on a constant and X2X _ { 2 } , and calculate the residual (Res1).
Step 2: regress X1X _ { 1 } on a constant and X2X _ { 2 } , and calculate the residual (Res2).
Step 3: regress Res1 on a constant and Res2. Prove that the slope of the regression in Step 3 is identical to the above formula.

Correct Answer:

verifed

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Unlock this Answer For Free Now!

View this answer and more for free by performing one of the following actions

qr-code

Scan the QR code to install the App and get 2 free unlocks

upload documents

Unlock quizzes for free by uploading documents